Correlation Between Naked Wines and Premium Brands

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

Diversification Opportunities for Naked Wines and Premium Brands

0.59

Correlation Coefficient

Naked Wines  Premium Brands

Very weak diversification

The 3 months correlation between Naked and Premium is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Naked Wines plc and Premium Brands Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premium Brands Holdings 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 Premium Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premium Brands Holdings has no effect on the direction of Naked Wines i.e., Naked Wines and Premium Brands go up and down completely randomly.

Pair Corralation between Naked Wines and Premium Brands

Assuming the 90 days horizon Naked Wines plc is expected to generate 4.88 times more return on investment than Premium Brands. However, Naked Wines is 4.88 times more volatile than Premium Brands Holdings. It trades about 0.04 of its potential returns per unit of risk. Premium Brands Holdings is currently generating about -0.02 per unit of risk. If you would invest  66.00  in Naked Wines plc on September 29, 2024 and sell it today you would earn a total of  0.00  from holding Naked Wines plc or generate 0.0% return on investment over 90 days.

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

Naked Wines plc  vs.  Premium Brands Holdings

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.

Premium Brands Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Premium Brands Holdings 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 January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Naked Wines and Premium Brands

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

The idea behind Naked Wines plc and Premium Brands Holdings 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.

Check out your portfolio center.

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 Money Managers module to screen money managers from public funds and ETFs managed around the world.