Correlation Between GB Group and Naked Wines

Can any of the company-specific risk be diversified away by investing in both GB 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 GB 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 GB Group plc and Naked Wines plc, you can compare the effects of market volatilities on GB 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 GB Group with a short position of Naked Wines. Check out your portfolio center. Please also check ongoing floating volatility patterns of GB Group and Naked Wines.

Diversification Opportunities for GB Group and Naked Wines

-0.35

Correlation Coefficient

GB Group  Naked Wines

Very good diversification

The 3 months correlation between GBG and Naked is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding GB Group plc 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 GB 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 GB Group plc 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 GB Group i.e., GB Group and Naked Wines go up and down completely randomly.

Pair Corralation between GB Group and Naked Wines

Assuming the 90 days trading horizon GB Group plc is expected to under-perform the Naked Wines. But the stock apears to be less risky and, when comparing its historical volatility, GB Group plc is 3.91 times less risky than Naked Wines. The stock trades about -0.11 of its potential returns per unit of risk. The Naked Wines plc is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  4,775  in Naked Wines plc on December 29, 2024 and sell it today you would earn a total of  4,425  from holding Naked Wines plc or generate 92.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

GB Group plc  vs.  Naked Wines plc

GB Group plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days GB Group plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Naked Wines unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GB Group and Naked Wines

The main advantage of trading using opposite GB Group and Naked Wines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GB 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 GB Group plc 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .