Correlation Between Naked Wines and China Health

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

Diversification Opportunities for Naked Wines and China Health

0.43

Correlation Coefficient

Naked Wines  China Health

Very weak diversification

The 3 months correlation between Naked and China is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Naked Wines plc and China Health Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Health Industries 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 China Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Health Industries has no effect on the direction of Naked Wines i.e., Naked Wines and China Health go up and down completely randomly.

Pair Corralation between Naked Wines and China Health

Assuming the 90 days horizon Naked Wines is expected to generate 3.1 times less return on investment than China Health. But when comparing it to its historical volatility, Naked Wines plc is 3.51 times less risky than China Health. It trades about 0.05 of its potential returns per unit of risk. China Health Industries is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  125.00  in China Health Industries on September 28, 2024 and sell it today you would lose (97.00) from holding China Health Industries or give up 77.6% of portfolio value over 90 days.

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

Naked Wines plc  vs.  China Health Industries

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 nearly stable basic indicators, Naked Wines is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

China Health Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Health Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Naked Wines and China Health

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

The idea behind Naked Wines plc and China Health Industries 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.