Correlation Between Naked Wines and Fresh Grapes

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

Diversification Opportunities for Naked Wines and Fresh Grapes

0.49

Correlation Coefficient

Naked Wines  Fresh Grapes

Very weak diversification

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

Pair Corralation between Naked Wines and Fresh Grapes

Assuming the 90 days horizon Naked Wines plc is expected to generate 0.68 times more return on investment than Fresh Grapes. However, Naked Wines plc is 1.48 times less risky than Fresh Grapes. It trades about 0.01 of its potential returns per unit of risk. Fresh Grapes LLC is currently generating about -0.06 per unit of risk. If you would invest  72.00  in Naked Wines plc on August 10, 2024 and sell it today you would lose (3.00) from holding Naked Wines plc or give up 4.17% 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.  Fresh Grapes LLC

Naked Wines plc

Risk-Adjusted Performance

5 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Naked Wines plc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Naked Wines reported solid returns over the last few months and may actually be approaching a breakup point.

Fresh Grapes LLC

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fresh Grapes LLC are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Fresh Grapes exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Naked Wines and Fresh Grapes

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

The idea behind Naked Wines plc and Fresh Grapes LLC 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.