Correlation Between Naked Wines and Willamette Valley

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

Diversification Opportunities for Naked Wines and Willamette Valley

0.02

Correlation Coefficient

Naked Wines  Willamette Valley

Significant diversification

The 3 months correlation between Naked and Willamette is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Naked Wines plc and Willamette Valley Vineyards in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Willamette Valley 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 Willamette Valley. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Willamette Valley has no effect on the direction of Naked Wines i.e., Naked Wines and Willamette Valley go up and down completely randomly.

Pair Corralation between Naked Wines and Willamette Valley

Assuming the 90 days horizon Naked Wines plc is expected to generate 5.08 times more return on investment than Willamette Valley. However, Naked Wines is 5.08 times more volatile than Willamette Valley Vineyards. It trades about 0.12 of its potential returns per unit of risk. Willamette Valley Vineyards is currently generating about 0.01 per unit of risk. If you would invest  255.00  in Naked Wines plc on December 30, 2024 and sell it today you would earn a total of  196.00  from holding Naked Wines plc or generate 76.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.88%
Values	Daily Returns

Naked Wines plc  vs.  Willamette Valley Vineyards

Naked Wines plc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Naked Wines plc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Naked Wines showed solid returns over the last few months and may actually be approaching a breakup point.

Willamette Valley

Risk-Adjusted Performance

Very Weak

Over the last 90 days Willamette Valley Vineyards has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, Willamette Valley is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Naked Wines and Willamette Valley

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

The idea behind Naked Wines plc and Willamette Valley Vineyards 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.