Correlation Between British Amer and Naked Wines

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

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

Diversification Opportunities for British Amer and Naked Wines

0.37

Correlation Coefficient

British Amer  Naked Wines

Weak diversification

The 3 months correlation between British and Naked is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco 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 British Amer 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 British American Tobacco 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 British Amer i.e., British Amer and Naked Wines go up and down completely randomly.

Pair Corralation between British Amer and Naked Wines

Considering the 90-day investment horizon British American Tobacco is expected to generate 0.44 times more return on investment than Naked Wines. However, British American Tobacco is 2.27 times less risky than Naked Wines. It trades about -0.05 of its potential returns per unit of risk. Naked Wines plc is currently generating about -0.21 per unit of risk. If you would invest  3,697  in British American Tobacco on October 11, 2024 and sell it today you would lose (23.00) from holding British American Tobacco or give up 0.62% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

British American Tobacco  vs.  Naked Wines plc

British American Tobacco

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, British Amer may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Naked Wines plc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Naked Wines plc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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 British Amer and Naked Wines

The main advantage of trading using opposite British Amer and Naked Wines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British Amer 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 British American Tobacco 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.