Correlation Between Naked Wines and BJs Restaurants

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

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

Diversification Opportunities for Naked Wines and BJs Restaurants

0.39

Correlation Coefficient

Naked Wines  BJs Restaurants

Weak diversification

The 3 months correlation between Naked and BJs is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Naked Wines plc and BJs Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BJs Restaurants and Naked Wines 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 Naked Wines plc are associated (or correlated) with BJs Restaurants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BJs Restaurants has no effect on the direction of Naked Wines i.e., Naked Wines and BJs Restaurants go up and down completely randomly.

Pair Corralation between Naked Wines and BJs Restaurants

Assuming the 90 days horizon Naked Wines plc is expected to under-perform the BJs Restaurants. But the pink sheet apears to be less risky and, when comparing its historical volatility, Naked Wines plc is 1.87 times less risky than BJs Restaurants. The pink sheet trades about -0.23 of its potential returns per unit of risk. The BJs Restaurants is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  3,734  in BJs Restaurants on October 5, 2024 and sell it today you would lose (220.00) from holding BJs Restaurants or give up 5.89% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Naked Wines plc  vs.  BJs Restaurants

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.

BJs Restaurants

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BJs Restaurants are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, BJs Restaurants may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Naked Wines and BJs Restaurants

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

The idea behind Naked Wines plc and BJs Restaurants 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.