Correlation Between Games Workshop and Fevertree Drinks

Can any of the company-specific risk be diversified away by investing in both Games Workshop and Fevertree Drinks 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 Games Workshop and Fevertree Drinks into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Games Workshop Group and Fevertree Drinks Plc, you can compare the effects of market volatilities on Games Workshop and Fevertree Drinks 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 Games Workshop with a short position of Fevertree Drinks. Check out your portfolio center. Please also check ongoing floating volatility patterns of Games Workshop and Fevertree Drinks.

Diversification Opportunities for Games Workshop and Fevertree Drinks

-0.69

Correlation Coefficient

Games Workshop  Fevertree Drinks

Excellent diversification

The 3 months correlation between Games and Fevertree is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Games Workshop Group and Fevertree Drinks Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fevertree Drinks Plc and Games Workshop 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 Games Workshop Group are associated (or correlated) with Fevertree Drinks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fevertree Drinks Plc has no effect on the direction of Games Workshop i.e., Games Workshop and Fevertree Drinks go up and down completely randomly.

Pair Corralation between Games Workshop and Fevertree Drinks

Assuming the 90 days trading horizon Games Workshop Group is expected to generate 1.45 times more return on investment than Fevertree Drinks. However, Games Workshop is 1.45 times more volatile than Fevertree Drinks Plc. It trades about 0.19 of its potential returns per unit of risk. Fevertree Drinks Plc is currently generating about -0.06 per unit of risk. If you would invest  1,054,484  in Games Workshop Group on September 14, 2024 and sell it today you would earn a total of  352,516  from holding Games Workshop Group or generate 33.43% return on investment over 90 days.

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

Games Workshop Group  vs.  Fevertree Drinks Plc

Games Workshop Group

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Games Workshop Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Games Workshop exhibited solid returns over the last few months and may actually be approaching a breakup point.

Fevertree Drinks Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fevertree Drinks Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Fevertree Drinks is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Games Workshop and Fevertree Drinks

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

The idea behind Games Workshop Group and Fevertree Drinks 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.