Correlation Between Naked Wines and Four Leaf

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

Diversification Opportunities for Naked Wines and Four Leaf

0.31

Correlation Coefficient

Naked Wines  Four Leaf

Weak diversification

The 3 months correlation between Naked and Four is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Naked Wines plc and Four Leaf Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Four Leaf Acquisition 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 Four Leaf. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Four Leaf Acquisition has no effect on the direction of Naked Wines i.e., Naked Wines and Four Leaf go up and down completely randomly.

Pair Corralation between Naked Wines and Four Leaf

Assuming the 90 days horizon Naked Wines plc is expected to under-perform the Four Leaf. In addition to that, Naked Wines is 21.31 times more volatile than Four Leaf Acquisition. It trades about 0.0 of its total potential returns per unit of risk. Four Leaf Acquisition is currently generating about 0.14 per unit of volatility. If you would invest  1,109  in Four Leaf Acquisition on December 25, 2024 and sell it today you would earn a total of  25.00  from holding Four Leaf Acquisition or generate 2.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.16%
Values	Daily Returns

Naked Wines plc  vs.  Four Leaf Acquisition

Naked Wines plc

Risk-Adjusted Performance

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.

Four Leaf Acquisition

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Four Leaf Acquisition are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Four Leaf is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Naked Wines and Four Leaf

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

The idea behind Naked Wines plc and Four Leaf Acquisition 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.