Correlation Between Naked Wines and Eastside Distilling

Can any of the company-specific risk be diversified away by investing in both Naked Wines and Eastside Distilling 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 Eastside Distilling 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 Eastside Distilling, you can compare the effects of market volatilities on Naked Wines and Eastside Distilling 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 Eastside Distilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of Naked Wines and Eastside Distilling.

Diversification Opportunities for Naked Wines and Eastside Distilling

0.05

Correlation Coefficient

Naked Wines  Eastside Distilling

Significant diversification

The 3 months correlation between Naked and Eastside is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Naked Wines plc and Eastside Distilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastside Distilling 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 Eastside Distilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastside Distilling has no effect on the direction of Naked Wines i.e., Naked Wines and Eastside Distilling go up and down completely randomly.

Pair Corralation between Naked Wines and Eastside Distilling

Assuming the 90 days horizon Naked Wines plc is expected to under-perform the Eastside Distilling. But the otc stock apears to be less risky and, when comparing its historical volatility, Naked Wines plc is 1.15 times less risky than Eastside Distilling. The otc stock trades about -0.04 of its potential returns per unit of risk. The Eastside Distilling is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  114.00  in Eastside Distilling on February 14, 2024 and sell it today you would lose (8.00) from holding Eastside Distilling or give up 7.02% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Naked Wines plc  vs.  Eastside Distilling

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 weak 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.

Eastside Distilling

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Eastside Distilling are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Eastside Distilling unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Naked Wines and Eastside Distilling

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

The idea behind Naked Wines plc and Eastside Distilling 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..