Correlation Between Naked Wines and Air Products
Can any of the company-specific risk be diversified away by investing in both Naked Wines and Air Products 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 Air Products 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 Air Products Chemicals, you can compare the effects of market volatilities on Naked Wines and Air Products 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 Air Products. Check out your portfolio center. Please also check ongoing floating volatility patterns of Naked Wines and Air Products.
Diversification Opportunities for Naked Wines and Air Products
0.25 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Naked and Air is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Naked Wines plc and Air Products Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Products Chemicals 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 Air Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Products Chemicals has no effect on the direction of Naked Wines i.e., Naked Wines and Air Products go up and down completely randomly.
Pair Corralation between Naked Wines and Air Products
Assuming the 90 days trading horizon Naked Wines is expected to generate 3.9 times less return on investment than Air Products. But when comparing it to its historical volatility, Naked Wines plc is 2.17 times less risky than Air Products. It trades about 0.02 of its potential returns per unit of risk. Air Products Chemicals is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 26,465 in Air Products Chemicals on September 12, 2024 and sell it today you would earn a total of 4,753 from holding Air Products Chemicals or generate 17.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Naked Wines plc vs. Air Products Chemicals
Performance |
| Timeline |
| Naked Wines plc |
| Air Products Chemicals |
Naked Wines and Air Products Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Naked Wines and Air Products
The main advantage of trading using opposite Naked Wines and Air Products positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Naked Wines position performs unexpectedly, Air Products 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 Air Products will offset losses from the drop in Air Products' long position.| Naked Wines vs. MT Bank Corp | Naked Wines vs. Microchip Technology | Naked Wines vs. Discover Financial Services | Naked Wines vs. Cognizant Technology Solutions |
| Air Products vs. Oakley Capital Investments | Air Products vs. Aurora Investment Trust | Air Products vs. New Residential Investment | Air Products vs. Liontrust Asset Management |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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