Correlation Between UBS ETF and Nestl SA
Can any of the company-specific risk be diversified away by investing in both UBS ETF and Nestl SA 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 UBS ETF and Nestl SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between UBS ETF plc and Nestl SA, you can compare the effects of market volatilities on UBS ETF and Nestl SA 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 UBS ETF with a short position of Nestl SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of UBS ETF and Nestl SA.
Diversification Opportunities for UBS ETF and Nestl SA
Excellent diversification
The 3 months correlation between UBS and Nestl is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding UBS ETF plc and Nestl SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestl SA and UBS ETF 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 UBS ETF plc are associated (or correlated) with Nestl SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestl SA has no effect on the direction of UBS ETF i.e., UBS ETF and Nestl SA go up and down completely randomly.
Pair Corralation between UBS ETF and Nestl SA
Assuming the 90 days trading horizon UBS ETF is expected to generate 2.88 times less return on investment than Nestl SA. But when comparing it to its historical volatility, UBS ETF plc is 1.9 times less risky than Nestl SA. It trades about 0.05 of its potential returns per unit of risk. Nestl SA is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 9,132 in Nestl SA on January 25, 2024 and sell it today you would earn a total of 294.00 from holding Nestl SA or generate 3.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
UBS ETF plc vs. Nestl SA
Performance |
| Timeline |
| UBS ETF plc |
| Nestl SA |
UBS ETF and Nestl SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with UBS ETF and Nestl SA
The main advantage of trading using opposite UBS ETF and Nestl SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if UBS ETF position performs unexpectedly, Nestl SA 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 Nestl SA will offset losses from the drop in Nestl SA's long position.The idea behind UBS ETF plc and Nestl SA 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.| Nestl SA vs. Novartis AG | Nestl SA vs. Roche Holding AG | Nestl SA vs. Zurich Insurance Group | Nestl SA vs. Swiss Re AG |
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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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