Correlation Between Aristocrat Group and Naked Wines

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

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

Diversification Opportunities for Aristocrat Group and Naked Wines

0.75

Correlation Coefficient

Aristocrat Group  Naked Wines

Poor diversification

The 3 months correlation between Aristocrat and Naked is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Aristocrat Group Corp 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 Aristocrat Group 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 Aristocrat Group Corp 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 Aristocrat Group i.e., Aristocrat Group and Naked Wines go up and down completely randomly.

Pair Corralation between Aristocrat Group and Naked Wines

Given the investment horizon of 90 days Aristocrat Group Corp is expected to generate 5.16 times more return on investment than Naked Wines. However, Aristocrat Group is 5.16 times more volatile than Naked Wines plc. It trades about 0.22 of its potential returns per unit of risk. Naked Wines plc is currently generating about 0.15 per unit of risk. If you would invest  0.70  in Aristocrat Group Corp on December 29, 2024 and sell it today you would earn a total of  5.78  from holding Aristocrat Group Corp or generate 825.71% return on investment over 90 days.

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

Aristocrat Group Corp  vs.  Naked Wines plc

Aristocrat Group Corp

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aristocrat Group Corp are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Aristocrat Group exhibited solid returns over the last few months and may actually be approaching a breakup point.

Naked Wines plc

Risk-Adjusted Performance

Good

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

Pair Trading with Aristocrat Group and Naked Wines

The main advantage of trading using opposite Aristocrat Group and Naked Wines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aristocrat Group 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 Aristocrat Group Corp 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.