Correlation Between Treasury Wine and ITALIAN WINE

Can any of the company-specific risk be diversified away by investing in both Treasury Wine and ITALIAN WINE 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 Treasury Wine and ITALIAN WINE into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Treasury Wine Estates and ITALIAN WINE BRANDS, you can compare the effects of market volatilities on Treasury Wine and ITALIAN WINE 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 Treasury Wine with a short position of ITALIAN WINE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Treasury Wine and ITALIAN WINE.

Diversification Opportunities for Treasury Wine and ITALIAN WINE

0.72

Correlation Coefficient

Treasury Wine  ITALIAN WINE

Poor diversification

The 3 months correlation between Treasury and ITALIAN is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Treasury Wine Estates and ITALIAN WINE BRANDS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITALIAN WINE BRANDS and Treasury Wine 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 Treasury Wine Estates are associated (or correlated) with ITALIAN WINE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITALIAN WINE BRANDS has no effect on the direction of Treasury Wine i.e., Treasury Wine and ITALIAN WINE go up and down completely randomly.

Pair Corralation between Treasury Wine and ITALIAN WINE

Assuming the 90 days horizon Treasury Wine Estates is expected to under-perform the ITALIAN WINE. But the stock apears to be less risky and, when comparing its historical volatility, Treasury Wine Estates is 1.62 times less risky than ITALIAN WINE. The stock trades about -0.1 of its potential returns per unit of risk. The ITALIAN WINE BRANDS is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  2,346  in ITALIAN WINE BRANDS on December 30, 2024 and sell it today you would lose (296.00) from holding ITALIAN WINE BRANDS or give up 12.62% of portfolio value over 90 days.

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

Treasury Wine Estates  vs.  ITALIAN WINE BRANDS

Treasury Wine Estates

Risk-Adjusted Performance

Very Weak

Over the last 90 days Treasury Wine Estates has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

ITALIAN WINE BRANDS

Risk-Adjusted Performance

Very Weak

Over the last 90 days ITALIAN WINE BRANDS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Treasury Wine and ITALIAN WINE

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

The idea behind Treasury Wine Estates and ITALIAN WINE BRANDS 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.