Correlation Between BBB Foods and Naked Wines
Can any of the company-specific risk be diversified away by investing in both BBB Foods 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 BBB Foods and Naked Wines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BBB Foods and Naked Wines plc, you can compare the effects of market volatilities on BBB Foods 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 BBB Foods with a short position of Naked Wines. Check out your portfolio center. Please also check ongoing floating volatility patterns of BBB Foods and Naked Wines.
Diversification Opportunities for BBB Foods and Naked Wines
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between BBB and Naked is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding BBB Foods 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 BBB Foods 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 BBB Foods 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 BBB Foods i.e., BBB Foods and Naked Wines go up and down completely randomly.
Pair Corralation between BBB Foods and Naked Wines
Given the investment horizon of 90 days BBB Foods is expected to under-perform the Naked Wines. But the stock apears to be less risky and, when comparing its historical volatility, BBB Foods is 3.2 times less risky than Naked Wines. The stock trades about -0.21 of its potential returns per unit of risk. The Naked Wines plc is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 198.00 in Naked Wines plc on November 27, 2024 and sell it today you would earn a total of 82.00 from holding Naked Wines plc or generate 41.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BBB Foods vs. Naked Wines plc
Performance |
| Timeline |
| BBB Foods |
| Naked Wines plc |
BBB Foods and Naked Wines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BBB Foods and Naked Wines
The main advantage of trading using opposite BBB Foods and Naked Wines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BBB Foods 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.| BBB Foods vs. LB Foster | BBB Foods vs. Eldorado Gold Corp | BBB Foods vs. ioneer Ltd American | BBB Foods vs. Sunlands Technology Group |
| 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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