Correlation Between Treasury Wine and Naked Wines

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

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

Diversification Opportunities for Treasury Wine and Naked Wines

-0.36

Correlation Coefficient

Treasury Wine  Naked Wines

Very good diversification

The 3 months correlation between Treasury and Naked is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Treasury Wine Estates 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 Treasury Wine 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 Treasury Wine Estates 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 Treasury Wine i.e., Treasury Wine and Naked Wines go up and down completely randomly.

Pair Corralation between Treasury Wine and Naked Wines

Assuming the 90 days horizon Treasury Wine Estates is expected to under-perform the Naked Wines. But the pink sheet apears to be less risky and, when comparing its historical volatility, Treasury Wine Estates is 8.39 times less risky than Naked Wines. The pink sheet trades about -0.44 of its potential returns per unit of risk. The Naked Wines plc is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  71.00  in Naked Wines plc on February 4, 2024 and sell it today you would lose (11.00) from holding Naked Wines plc or give up 15.49% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

Treasury Wine Estates  vs.  Naked Wines plc

Treasury Wine Estates

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Treasury Wine Estates are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Treasury Wine may actually be approaching a critical reversion point that can send shares even higher in June 2024.

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. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Treasury Wine and Naked Wines

The main advantage of trading using opposite Treasury Wine and Naked Wines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Treasury Wine 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 Treasury Wine Estates 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.

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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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.