Correlation Between Naked Wines and Pernod Ricard

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

Diversification Opportunities for Naked Wines and Pernod Ricard

0.3

Correlation Coefficient

Naked Wines  Pernod Ricard

Weak diversification

The 3 months correlation between Naked and Pernod is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Naked Wines plc and Pernod Ricard SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pernod Ricard SA 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 Pernod Ricard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pernod Ricard SA has no effect on the direction of Naked Wines i.e., Naked Wines and Pernod Ricard go up and down completely randomly.

Pair Corralation between Naked Wines and Pernod Ricard

Assuming the 90 days horizon Naked Wines plc is expected to generate 3.75 times more return on investment than Pernod Ricard. However, Naked Wines is 3.75 times more volatile than Pernod Ricard SA. It trades about 0.01 of its potential returns per unit of risk. Pernod Ricard SA is currently generating about -0.13 per unit of risk. If you would invest  73.00  in Naked Wines plc on September 12, 2024 and sell it today you would lose (9.00) from holding Naked Wines plc or give up 12.33% 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.  Pernod Ricard SA

Naked Wines plc

Risk-Adjusted Performance

0 of 100

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pernod Ricard SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pernod Ricard SA 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 fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Naked Wines and Pernod Ricard

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

The idea behind Naked Wines plc and Pernod Ricard SA 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.