Correlation Between Naked Wines and PepsiCo

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

Diversification Opportunities for Naked Wines and PepsiCo

-0.35

Correlation Coefficient

Naked Wines  PepsiCo

Very good diversification

The 3 months correlation between Naked and PepsiCo is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Naked Wines plc and PepsiCo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PepsiCo 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 PepsiCo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PepsiCo has no effect on the direction of Naked Wines i.e., Naked Wines and PepsiCo go up and down completely randomly.

Pair Corralation between Naked Wines and PepsiCo

Assuming the 90 days horizon Naked Wines plc is expected to under-perform the PepsiCo. In addition to that, Naked Wines is 7.05 times more volatile than PepsiCo. It trades about 0.0 of its total potential returns per unit of risk. PepsiCo is currently generating about -0.02 per unit of volatility. If you would invest  16,580  in PepsiCo on October 5, 2024 and sell it today you would lose (1,559) from holding PepsiCo or give up 9.4% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

Naked Wines plc  vs.  PepsiCo

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.

PepsiCo

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PepsiCo has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unsteady performance, the Stock's technical and fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Naked Wines and PepsiCo

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

The idea behind Naked Wines plc and PepsiCo 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.