Correlation Between Naked Wines and Wal Mart

Can any of the company-specific risk be diversified away by investing in both Naked Wines and Wal Mart 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 Wal Mart 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 Wal Mart de, you can compare the effects of market volatilities on Naked Wines and Wal Mart 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 Wal Mart. Check out your portfolio center. Please also check ongoing floating volatility patterns of Naked Wines and Wal Mart.

Diversification Opportunities for Naked Wines and Wal Mart

0.26

Correlation Coefficient

Naked Wines  Wal Mart

Modest diversification

The 3 months correlation between Naked and Wal is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Naked Wines plc and Wal Mart de in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wal Mart de 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 Wal Mart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wal Mart de has no effect on the direction of Naked Wines i.e., Naked Wines and Wal Mart go up and down completely randomly.

Pair Corralation between Naked Wines and Wal Mart

Assuming the 90 days horizon Naked Wines plc is expected to generate 3.16 times more return on investment than Wal Mart. However, Naked Wines is 3.16 times more volatile than Wal Mart de. It trades about 0.0 of its potential returns per unit of risk. Wal Mart de is currently generating about -0.02 per unit of risk. If you would invest  161.00  in Naked Wines plc on September 28, 2024 and sell it today you would lose (95.00) from holding Naked Wines plc or give up 59.01% of portfolio value over 90 days.

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

Naked Wines plc  vs.  Wal Mart de

Naked Wines plc

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Naked Wines plc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Naked Wines reported solid returns over the last few months and may actually be approaching a breakup point.

Wal Mart de

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wal Mart de has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Wal Mart is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Naked Wines and Wal Mart

The main advantage of trading using opposite Naked Wines and Wal Mart positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Naked Wines position performs unexpectedly, Wal Mart 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 Wal Mart will offset losses from the drop in Wal Mart's long position.

The idea behind Naked Wines plc and Wal Mart de 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.