Correlation Between Naked Wines and Capital Drilling

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

Diversification Opportunities for Naked Wines and Capital Drilling

0.49

Correlation Coefficient

Naked Wines  Capital Drilling

Very weak diversification

The 3 months correlation between Naked and Capital is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Naked Wines plc and Capital Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Drilling 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 Capital Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Drilling has no effect on the direction of Naked Wines i.e., Naked Wines and Capital Drilling go up and down completely randomly.

Pair Corralation between Naked Wines and Capital Drilling

Assuming the 90 days trading horizon Naked Wines plc is expected to under-perform the Capital Drilling. In addition to that, Naked Wines is 1.24 times more volatile than Capital Drilling. It trades about -0.03 of its total potential returns per unit of risk. Capital Drilling is currently generating about 0.0 per unit of volatility. If you would invest  8,510  in Capital Drilling on September 3, 2024 and sell it today you would lose (130.00) from holding Capital Drilling or give up 1.53% of portfolio value over 90 days.

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

Naked Wines plc  vs.  Capital Drilling

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Capital Drilling

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capital Drilling has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Capital Drilling 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 Naked Wines and Capital Drilling

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

The idea behind Naked Wines plc and Capital Drilling 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.