Correlation Between Naked Wines and National Beverage

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

Diversification Opportunities for Naked Wines and National Beverage

0.65

Correlation Coefficient

Naked Wines  National Beverage

Poor diversification

The 3 months correlation between Naked and National is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Naked Wines plc and National Beverage Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Beverage Corp 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 National Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Beverage Corp has no effect on the direction of Naked Wines i.e., Naked Wines and National Beverage go up and down completely randomly.

Pair Corralation between Naked Wines and National Beverage

Assuming the 90 days horizon Naked Wines plc is expected to under-perform the National Beverage. In addition to that, Naked Wines is 1.87 times more volatile than National Beverage Corp. It trades about -0.11 of its total potential returns per unit of risk. National Beverage Corp is currently generating about -0.07 per unit of volatility. If you would invest  4,568  in National Beverage Corp on October 24, 2024 and sell it today you would lose (324.00) from holding National Beverage Corp or give up 7.09% of portfolio value over 90 days.

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

Naked Wines plc  vs.  National Beverage Corp

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 weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

National Beverage Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Beverage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Naked Wines and National Beverage

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

The idea behind Naked Wines plc and National Beverage Corp 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 Anywhere module to track or share privately all of your investments from the convenience of any device.