Correlation Between Naked Wines and Cembra Money

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

Diversification Opportunities for Naked Wines and Cembra Money

0.39

Correlation Coefficient

Naked Wines  Cembra Money

Weak diversification

The 3 months correlation between Naked and Cembra is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Naked Wines plc and Cembra Money Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cembra Money Bank 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 Cembra Money. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cembra Money Bank has no effect on the direction of Naked Wines i.e., Naked Wines and Cembra Money go up and down completely randomly.

Pair Corralation between Naked Wines and Cembra Money

Assuming the 90 days trading horizon Naked Wines plc is expected to generate 2.51 times more return on investment than Cembra Money. However, Naked Wines is 2.51 times more volatile than Cembra Money Bank. It trades about 0.12 of its potential returns per unit of risk. Cembra Money Bank is currently generating about 0.21 per unit of risk. If you would invest  5,070  in Naked Wines plc on November 29, 2024 and sell it today you would earn a total of  1,230  from holding Naked Wines plc or generate 24.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Naked Wines plc  vs.  Cembra Money Bank

Naked Wines plc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Naked Wines plc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Naked Wines unveiled solid returns over the last few months and may actually be approaching a breakup point.

Cembra Money Bank

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cembra Money Bank are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Cembra Money unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Naked Wines and Cembra Money

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

The idea behind Naked Wines plc and Cembra Money Bank 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.