Correlation Between Treasury Wine and Challenger

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

Diversification Opportunities for Treasury Wine and Challenger

0.37

Correlation Coefficient

Treasury Wine  Challenger

Weak diversification

The 3 months correlation between Treasury and Challenger is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Treasury Wine Estates and Challenger in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Challenger 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 Challenger. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Challenger has no effect on the direction of Treasury Wine i.e., Treasury Wine and Challenger go up and down completely randomly.

Pair Corralation between Treasury Wine and Challenger

Assuming the 90 days trading horizon Treasury Wine Estates is expected to under-perform the Challenger. But the stock apears to be less risky and, when comparing its historical volatility, Treasury Wine Estates is 1.35 times less risky than Challenger. The stock trades about -0.12 of its potential returns per unit of risk. The Challenger is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  589.00  in Challenger on December 26, 2024 and sell it today you would earn a total of  6.00  from holding Challenger or generate 1.02% return on investment over 90 days.

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

Treasury Wine Estates  vs.  Challenger

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. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Challenger

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Challenger are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Challenger is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Treasury Wine and Challenger

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

The idea behind Treasury Wine Estates and Challenger 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.