Correlation Between NAKED WINES and Heidelberg Materials

Can any of the company-specific risk be diversified away by investing in both NAKED WINES and Heidelberg Materials at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining NAKED WINES and Heidelberg Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between NAKED WINES PLC and Heidelberg Materials AG, you can compare the effects of market volatilities on NAKED WINES and Heidelberg Materials and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in NAKED WINES with a short position of Heidelberg Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of NAKED WINES and Heidelberg Materials.

Diversification Opportunities for NAKED WINES and Heidelberg Materials

-0.54

Correlation Coefficient

NAKED WINES  Heidelberg Materials

Excellent diversification

The 3 months correlation between NAKED and Heidelberg is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding NAKED WINES PLC and Heidelberg Materials AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heidelberg Materials and NAKED WINES is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on NAKED WINES PLC are associated (or correlated) with Heidelberg Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heidelberg Materials has no effect on the direction of NAKED WINES i.e., NAKED WINES and Heidelberg Materials go up and down completely randomly.

Pair Corralation between NAKED WINES and Heidelberg Materials

Assuming the 90 days horizon NAKED WINES PLC is expected to under-perform the Heidelberg Materials. In addition to that, NAKED WINES is 2.12 times more volatile than Heidelberg Materials AG. It trades about -0.02 of its total potential returns per unit of risk. Heidelberg Materials AG is currently generating about 0.2 per unit of volatility. If you would invest  9,898  in Heidelberg Materials AG on September 22, 2024 and sell it today you would earn a total of  2,137  from holding Heidelberg Materials AG or generate 21.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

NAKED WINES PLC  vs.  Heidelberg Materials AG

NAKED WINES PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NAKED WINES PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, NAKED WINES is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Heidelberg Materials

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Heidelberg Materials AG are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Heidelberg Materials reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NAKED WINES and Heidelberg Materials

The main advantage of trading using opposite NAKED WINES and Heidelberg Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NAKED WINES position performs unexpectedly, Heidelberg Materials can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Heidelberg Materials will offset losses from the drop in Heidelberg Materials' long position.

The idea behind NAKED WINES PLC and Heidelberg Materials AG pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.