Correlation Between Western Sierra and Naked Wines

Can any of the company-specific risk be diversified away by investing in both Western Sierra and Naked Wines 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 Western Sierra and Naked Wines into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Western Sierra Mining and Naked Wines plc, you can compare the effects of market volatilities on Western Sierra and Naked Wines 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 Western Sierra with a short position of Naked Wines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Sierra and Naked Wines.

Diversification Opportunities for Western Sierra and Naked Wines

0.2

Correlation Coefficient

Western Sierra  Naked Wines

Modest diversification

The 3 months correlation between Western and Naked is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Western Sierra Mining and Naked Wines plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Naked Wines plc and Western Sierra 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 Western Sierra Mining are associated (or correlated) with Naked Wines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Naked Wines plc has no effect on the direction of Western Sierra i.e., Western Sierra and Naked Wines go up and down completely randomly.

Pair Corralation between Western Sierra and Naked Wines

Given the investment horizon of 90 days Western Sierra Mining is expected to under-perform the Naked Wines. But the pink sheet apears to be less risky and, when comparing its historical volatility, Western Sierra Mining is 1.17 times less risky than Naked Wines. The pink sheet trades about -0.17 of its potential returns per unit of risk. The Naked Wines plc is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  286.00  in Naked Wines plc on September 1, 2024 and sell it today you would lose (15.00) from holding Naked Wines plc or give up 5.24% of portfolio value over 90 days.

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

Western Sierra Mining  vs.  Naked Wines plc

Western Sierra Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Sierra Mining has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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. In spite of fairly strong basic indicators, Naked Wines is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Western Sierra and Naked Wines

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

The idea behind Western Sierra Mining and Naked Wines plc 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.