Correlation Between Naked Wines and Crimson Wine

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

Diversification Opportunities for Naked Wines and Crimson Wine

-0.29

Correlation Coefficient

Naked Wines  Crimson Wine

Very good diversification

The 3 months correlation between Naked and Crimson is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Naked Wines plc and Crimson Wine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crimson Wine 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 Crimson Wine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crimson Wine has no effect on the direction of Naked Wines i.e., Naked Wines and Crimson Wine go up and down completely randomly.

Pair Corralation between Naked Wines and Crimson Wine

Assuming the 90 days horizon Naked Wines is expected to generate 18.13 times less return on investment than Crimson Wine. But when comparing it to its historical volatility, Naked Wines plc is 1.96 times less risky than Crimson Wine. It trades about 0.01 of its potential returns per unit of risk. Crimson Wine is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  595.00  in Crimson Wine on September 12, 2024 and sell it today you would earn a total of  44.00  from holding Crimson Wine or generate 7.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Naked Wines plc  vs.  Crimson Wine

Naked Wines plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Naked Wines plc has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Crimson Wine

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Crimson Wine are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady technical and fundamental indicators, Crimson Wine may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Naked Wines and Crimson Wine

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

The idea behind Naked Wines plc and Crimson Wine 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.