Correlation Between Naked Wines and Splash Beverage

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

Diversification Opportunities for Naked Wines and Splash Beverage

-0.03

Correlation Coefficient

Naked Wines  Splash Beverage

Good diversification

The 3 months correlation between Naked and Splash is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Naked Wines plc and Splash Beverage Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Splash Beverage Group 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 Splash Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Splash Beverage Group has no effect on the direction of Naked Wines i.e., Naked Wines and Splash Beverage go up and down completely randomly.

Pair Corralation between Naked Wines and Splash Beverage

Assuming the 90 days horizon Naked Wines is expected to generate 42.63 times less return on investment than Splash Beverage. But when comparing it to its historical volatility, Naked Wines plc is 1.07 times less risky than Splash Beverage. It trades about 0.0 of its potential returns per unit of risk. Splash Beverage Group is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  20.00  in Splash Beverage Group on November 19, 2024 and sell it today you would lose (3.00) from holding Splash Beverage Group or give up 15.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Naked Wines plc  vs.  Splash Beverage Group

Naked Wines plc

Risk-Adjusted Performance

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

Splash Beverage Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Splash Beverage Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, Splash Beverage is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Naked Wines and Splash Beverage

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

The idea behind Naked Wines plc and Splash Beverage Group 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.