Correlation Between Lumia and Naked Wines
Can any of the company-specific risk be diversified away by investing in both Lumia 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 Lumia and Naked Wines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lumia and Naked Wines plc, you can compare the effects of market volatilities on Lumia 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 Lumia with a short position of Naked Wines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lumia and Naked Wines.
Diversification Opportunities for Lumia and Naked Wines
-0.36 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Lumia and Naked is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Lumia 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 Lumia 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 Lumia 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 Lumia i.e., Lumia and Naked Wines go up and down completely randomly.
Pair Corralation between Lumia and Naked Wines
Assuming the 90 days trading horizon Lumia is expected to generate 1.49 times more return on investment than Naked Wines. However, Lumia is 1.49 times more volatile than Naked Wines plc. It trades about -0.14 of its potential returns per unit of risk. Naked Wines plc is currently generating about -0.21 per unit of risk. If you would invest 161.00 in Lumia on October 20, 2024 and sell it today you would lose (38.00) from holding Lumia or give up 23.6% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lumia vs. Naked Wines plc
Performance |
| Timeline |
| Lumia |
| Naked Wines plc |
Lumia and Naked Wines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lumia and Naked Wines
The main advantage of trading using opposite Lumia and Naked Wines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lumia 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 Lumia 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.| Naked Wines vs. Pernod Ricard SA | Naked Wines vs. Naked Wines plc | Naked Wines vs. Crimson Wine | Naked Wines vs. Brown Forman |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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