Correlation Between Naked Wines and Diamond Estates

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

Diversification Opportunities for Naked Wines and Diamond Estates

0.0

Correlation Coefficient

Naked Wines  Diamond Estates

Pay attention - limited upside

The 3 months correlation between Naked and Diamond is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Naked Wines plc and Diamond Estates Wines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Estates Wines 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 Diamond Estates. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamond Estates Wines has no effect on the direction of Naked Wines i.e., Naked Wines and Diamond Estates go up and down completely randomly.

Pair Corralation between Naked Wines and Diamond Estates

Assuming the 90 days horizon Naked Wines plc is expected to generate 1.59 times more return on investment than Diamond Estates. However, Naked Wines is 1.59 times more volatile than Diamond Estates Wines. It trades about 0.0 of its potential returns per unit of risk. Diamond Estates Wines is currently generating about -0.06 per unit of risk. If you would invest  161.00  in Naked Wines plc on September 29, 2024 and sell it today you would lose (95.00) from holding Naked Wines plc or give up 59.01% of portfolio value over 90 days.

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

Naked Wines plc  vs.  Diamond Estates Wines

Naked Wines plc

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Naked Wines plc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Naked Wines reported solid returns over the last few months and may actually be approaching a breakup point.

Diamond Estates Wines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diamond Estates Wines has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Diamond Estates is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Naked Wines and Diamond Estates

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

The idea behind Naked Wines plc and Diamond Estates Wines 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.