Correlation Between Naked Wines and Aberforth Smaller

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

Diversification Opportunities for Naked Wines and Aberforth Smaller

-0.57

Correlation Coefficient

Naked Wines  Aberforth Smaller

Excellent diversification

The 3 months correlation between Naked and Aberforth is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Naked Wines plc and Aberforth Smaller Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aberforth Smaller 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 Aberforth Smaller. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aberforth Smaller has no effect on the direction of Naked Wines i.e., Naked Wines and Aberforth Smaller go up and down completely randomly.

Pair Corralation between Naked Wines and Aberforth Smaller

Assuming the 90 days trading horizon Naked Wines plc is expected to generate 4.96 times more return on investment than Aberforth Smaller. However, Naked Wines is 4.96 times more volatile than Aberforth Smaller Companies. It trades about 0.04 of its potential returns per unit of risk. Aberforth Smaller Companies is currently generating about -0.14 per unit of risk. If you would invest  4,930  in Naked Wines plc on December 24, 2024 and sell it today you would earn a total of  300.00  from holding Naked Wines plc or generate 6.09% return on investment over 90 days.

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

Naked Wines plc  vs.  Aberforth Smaller Companies

Naked Wines plc

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Naked Wines plc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Naked Wines may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Aberforth Smaller

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aberforth Smaller Companies 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 sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Naked Wines and Aberforth Smaller

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

The idea behind Naked Wines plc and Aberforth Smaller Companies 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.