Correlation Between Naked Wines and Cincinnati Financial

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

Diversification Opportunities for Naked Wines and Cincinnati Financial

-0.19

Correlation Coefficient

Naked Wines  Cincinnati Financial

Good diversification

The 3 months correlation between Naked and Cincinnati is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Naked Wines plc and Cincinnati Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cincinnati Financial Corp 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 Cincinnati Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cincinnati Financial Corp has no effect on the direction of Naked Wines i.e., Naked Wines and Cincinnati Financial go up and down completely randomly.

Pair Corralation between Naked Wines and Cincinnati Financial

Assuming the 90 days trading horizon Naked Wines plc is expected to under-perform the Cincinnati Financial. In addition to that, Naked Wines is 1.47 times more volatile than Cincinnati Financial Corp. It trades about -0.04 of its total potential returns per unit of risk. Cincinnati Financial Corp is currently generating about 0.16 per unit of volatility. If you would invest  13,637  in Cincinnati Financial Corp on August 31, 2024 and sell it today you would earn a total of  2,295  from holding Cincinnati Financial Corp or generate 16.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Naked Wines plc  vs.  Cincinnati Financial Corp

Naked Wines plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Naked Wines plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Naked Wines is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Cincinnati Financial Corp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cincinnati Financial Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Cincinnati Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Naked Wines and Cincinnati Financial

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

The idea behind Naked Wines plc and Cincinnati Financial Corp 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.