Correlation Between NAKED WINES and CPU SOFTWAREHOUSE

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

Diversification Opportunities for NAKED WINES and CPU SOFTWAREHOUSE

0.2

Correlation Coefficient

NAKED WINES  CPU SOFTWAREHOUSE

Modest diversification

The 3 months correlation between NAKED and CPU is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding NAKED WINES PLC and CPU SOFTWAREHOUSE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CPU SOFTWAREHOUSE 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 CPU SOFTWAREHOUSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CPU SOFTWAREHOUSE has no effect on the direction of NAKED WINES i.e., NAKED WINES and CPU SOFTWAREHOUSE go up and down completely randomly.

Pair Corralation between NAKED WINES and CPU SOFTWAREHOUSE

Assuming the 90 days horizon NAKED WINES PLC is expected to under-perform the CPU SOFTWAREHOUSE. But the stock apears to be less risky and, when comparing its historical volatility, NAKED WINES PLC is 1.32 times less risky than CPU SOFTWAREHOUSE. The stock trades about -0.08 of its potential returns per unit of risk. The CPU SOFTWAREHOUSE is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  94.00  in CPU SOFTWAREHOUSE on October 11, 2024 and sell it today you would lose (4.00) from holding CPU SOFTWAREHOUSE or give up 4.26% of portfolio value over 90 days.

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

NAKED WINES PLC  vs.  CPU SOFTWAREHOUSE

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. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

CPU SOFTWAREHOUSE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CPU SOFTWAREHOUSE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, CPU SOFTWAREHOUSE is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with NAKED WINES and CPU SOFTWAREHOUSE

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

The idea behind NAKED WINES PLC and CPU SOFTWAREHOUSE 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.