Correlation Between Optima Health and Virgin Wines

Can any of the company-specific risk be diversified away by investing in both Optima Health and Virgin Wines 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 Optima Health and Virgin Wines into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Optima Health plc and Virgin Wines UK, you can compare the effects of market volatilities on Optima Health and Virgin Wines 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 Optima Health with a short position of Virgin Wines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Optima Health and Virgin Wines.

Diversification Opportunities for Optima Health and Virgin Wines

0.86

Correlation Coefficient

Optima Health  Virgin Wines

Very poor diversification

The 3 months correlation between Optima and Virgin is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Optima Health plc and Virgin Wines UK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Virgin Wines UK and Optima Health 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 Optima Health plc are associated (or correlated) with Virgin Wines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Virgin Wines UK has no effect on the direction of Optima Health i.e., Optima Health and Virgin Wines go up and down completely randomly.

Pair Corralation between Optima Health and Virgin Wines

Assuming the 90 days trading horizon Optima Health is expected to generate 1.49 times less return on investment than Virgin Wines. But when comparing it to its historical volatility, Optima Health plc is 1.74 times less risky than Virgin Wines. It trades about 0.27 of its potential returns per unit of risk. Virgin Wines UK is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  3,300  in Virgin Wines UK on December 24, 2024 and sell it today you would earn a total of  1,650  from holding Virgin Wines UK or generate 50.0% return on investment over 90 days.

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

Optima Health plc  vs.  Virgin Wines UK

Optima Health plc

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Optima Health plc are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Optima Health exhibited solid returns over the last few months and may actually be approaching a breakup point.

Virgin Wines UK

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Virgin Wines UK are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Virgin Wines unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Optima Health and Virgin Wines

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

The idea behind Optima Health plc and Virgin Wines UK 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.