Correlation Between Naked Wines and Thai Beverage

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

Diversification Opportunities for Naked Wines and Thai Beverage

0.02

Correlation Coefficient

Naked Wines  Thai Beverage

Significant diversification

The 3 months correlation between Naked and Thai is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Naked Wines plc and Thai Beverage PCL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thai Beverage PCL 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 Thai Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thai Beverage PCL has no effect on the direction of Naked Wines i.e., Naked Wines and Thai Beverage go up and down completely randomly.

Pair Corralation between Naked Wines and Thai Beverage

Assuming the 90 days horizon Naked Wines plc is expected to generate 15.32 times more return on investment than Thai Beverage. However, Naked Wines is 15.32 times more volatile than Thai Beverage PCL. It trades about 0.05 of its potential returns per unit of risk. Thai Beverage PCL is currently generating about 0.13 per unit of risk. If you would invest  66.00  in Naked Wines plc on November 28, 2024 and sell it today you would earn a total of  4.00  from holding Naked Wines plc or generate 6.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.31%
Values	Daily Returns

Naked Wines plc  vs.  Thai Beverage PCL

Naked Wines plc

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Naked Wines plc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Naked Wines reported solid returns over the last few months and may actually be approaching a breakup point.

Thai Beverage PCL

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Thai Beverage PCL are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Thai Beverage is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Naked Wines and Thai Beverage

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

The idea behind Naked Wines plc and Thai Beverage PCL 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.