Correlation Between Willamette Valley and Brown Forman

Can any of the company-specific risk be diversified away by investing in both Willamette Valley and Brown Forman 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 Willamette Valley and Brown Forman into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Willamette Valley Vineyards and Brown Forman, you can compare the effects of market volatilities on Willamette Valley and Brown Forman 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 Willamette Valley with a short position of Brown Forman. Check out your portfolio center. Please also check ongoing floating volatility patterns of Willamette Valley and Brown Forman.

Diversification Opportunities for Willamette Valley and Brown Forman

0.3

Correlation Coefficient

Willamette Valley  Brown Forman

Weak diversification

The 3 months correlation between Willamette and Brown is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Willamette Valley Vineyards and Brown Forman in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brown Forman and Willamette Valley 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 Willamette Valley Vineyards are associated (or correlated) with Brown Forman. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brown Forman has no effect on the direction of Willamette Valley i.e., Willamette Valley and Brown Forman go up and down completely randomly.

Pair Corralation between Willamette Valley and Brown Forman

Assuming the 90 days horizon Willamette Valley Vineyards is expected to generate 1.66 times more return on investment than Brown Forman. However, Willamette Valley is 1.66 times more volatile than Brown Forman. It trades about -0.01 of its potential returns per unit of risk. Brown Forman is currently generating about -0.05 per unit of risk. If you would invest  434.00  in Willamette Valley Vineyards on September 13, 2024 and sell it today you would lose (69.00) from holding Willamette Valley Vineyards or give up 15.9% of portfolio value over 90 days.

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

Willamette Valley Vineyards  vs.  Brown Forman

Willamette Valley

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Willamette Valley Vineyards has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, Willamette Valley is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Brown Forman

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brown Forman has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Brown Forman is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Willamette Valley and Brown Forman

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

The idea behind Willamette Valley Vineyards and Brown Forman 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.