Correlation Between CHINA HUARONG and NAKED WINES

Can any of the company-specific risk be diversified away by investing in both CHINA HUARONG 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 CHINA HUARONG and NAKED WINES into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CHINA HUARONG ENERHD 50 and NAKED WINES PLC, you can compare the effects of market volatilities on CHINA HUARONG 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 CHINA HUARONG with a short position of NAKED WINES. Check out your portfolio center. Please also check ongoing floating volatility patterns of CHINA HUARONG and NAKED WINES.

Diversification Opportunities for CHINA HUARONG and NAKED WINES

0.62

Correlation Coefficient

CHINA HUARONG  NAKED WINES

Poor diversification

The 3 months correlation between CHINA and NAKED is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding CHINA HUARONG ENERHD 50 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 CHINA HUARONG 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 CHINA HUARONG ENERHD 50 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 CHINA HUARONG i.e., CHINA HUARONG and NAKED WINES go up and down completely randomly.

Pair Corralation between CHINA HUARONG and NAKED WINES

Assuming the 90 days trading horizon CHINA HUARONG ENERHD 50 is expected to generate 8.9 times more return on investment than NAKED WINES. However, CHINA HUARONG is 8.9 times more volatile than NAKED WINES PLC. It trades about 0.14 of its potential returns per unit of risk. NAKED WINES PLC is currently generating about 0.04 per unit of risk. If you would invest  0.05  in CHINA HUARONG ENERHD 50 on September 12, 2024 and sell it today you would earn a total of  0.10  from holding CHINA HUARONG ENERHD 50 or generate 200.0% return on investment over 90 days.

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

CHINA HUARONG ENERHD 50  vs.  NAKED WINES PLC

CHINA HUARONG ENERHD

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA HUARONG ENERHD 50 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CHINA HUARONG reported solid returns over the last few months and may actually be approaching a breakup point.

NAKED WINES PLC

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NAKED WINES PLC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, NAKED WINES may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with CHINA HUARONG and NAKED WINES

The main advantage of trading using opposite CHINA HUARONG and NAKED WINES positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CHINA HUARONG 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's long position.

The idea behind CHINA HUARONG ENERHD 50 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.