Correlation Between GungHo Online and Naked Wines

Can any of the company-specific risk be diversified away by investing in both GungHo Online and Naked Wines 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 GungHo Online and Naked Wines into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between GungHo Online Entertainment and Naked Wines plc, you can compare the effects of market volatilities on GungHo Online and Naked Wines 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 GungHo Online with a short position of Naked Wines. Check out your portfolio center. Please also check ongoing floating volatility patterns of GungHo Online and Naked Wines.

Diversification Opportunities for GungHo Online and Naked Wines

-0.11

Correlation Coefficient

GungHo Online  Naked Wines

Good diversification

The 3 months correlation between GungHo and Naked is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding GungHo Online Entertainment and Naked Wines plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Naked Wines plc and GungHo Online 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 GungHo Online Entertainment are associated (or correlated) with Naked Wines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Naked Wines plc has no effect on the direction of GungHo Online i.e., GungHo Online and Naked Wines go up and down completely randomly.

Pair Corralation between GungHo Online and Naked Wines

Assuming the 90 days horizon GungHo Online Entertainment is expected to generate 0.47 times more return on investment than Naked Wines. However, GungHo Online Entertainment is 2.11 times less risky than Naked Wines. It trades about -0.19 of its potential returns per unit of risk. Naked Wines plc is currently generating about -0.16 per unit of risk. If you would invest  1,693  in GungHo Online Entertainment on January 17, 2024 and sell it today you would lose (128.00) from holding GungHo Online Entertainment or give up 7.56% of portfolio value over 90 days.

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

GungHo Online Entertainment  vs.  Naked Wines plc

GungHo Online Entert

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GungHo Online Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Naked Wines plc

Risk-Adjusted Performance

9 of 100

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 fairly unfluctuating basic indicators, Naked Wines showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GungHo Online and Naked Wines

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

The idea behind GungHo Online Entertainment and Naked Wines plc 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.