Correlation Between Naked Wines and First Community

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

Diversification Opportunities for Naked Wines and First Community

0.69

Correlation Coefficient

Naked Wines  First Community

Poor diversification

The 3 months correlation between Naked and First is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Naked Wines plc and First Community Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Community Banc 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 First Community. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Community Banc has no effect on the direction of Naked Wines i.e., Naked Wines and First Community go up and down completely randomly.

Pair Corralation between Naked Wines and First Community

Assuming the 90 days horizon Naked Wines plc is expected to generate 0.67 times more return on investment than First Community. However, Naked Wines plc is 1.49 times less risky than First Community. It trades about -0.23 of its potential returns per unit of risk. First Community Bancshares is currently generating about -0.23 per unit of risk. If you would invest  271.00  in Naked Wines plc on September 27, 2024 and sell it today you would lose (16.00) from holding Naked Wines plc or give up 5.9% of portfolio value over 90 days.

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

Naked Wines plc  vs.  First Community Bancshares

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.

First Community Banc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Community Bancshares are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, First Community is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Naked Wines and First Community

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

The idea behind Naked Wines plc and First Community Bancshares 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.

Check out your portfolio center.

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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.