Correlation Between Danone PK and Nestle SA
Can any of the company-specific risk be diversified away by investing in both Danone PK and Nestle 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 Danone PK and Nestle SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Danone PK and Nestle SA, you can compare the effects of market volatilities on Danone PK and Nestle 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 Danone PK with a short position of Nestle SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Danone PK and Nestle SA.
Diversification Opportunities for Danone PK and Nestle SA
Excellent diversification
The 3 months correlation between Danone and Nestle is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Danone PK and Nestle SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestle SA and Danone PK 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 Danone PK are associated (or correlated) with Nestle SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestle SA has no effect on the direction of Danone PK i.e., Danone PK and Nestle SA go up and down completely randomly.
Pair Corralation between Danone PK and Nestle SA
Assuming the 90 days horizon Danone PK is expected to under-perform the Nestle SA. But the otc stock apears to be less risky and, when comparing its historical volatility, Danone PK is 1.74 times less risky than Nestle SA. The otc stock trades about -0.14 of its potential returns per unit of risk. The Nestle SA is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest 11,004 in Nestle SA on January 24, 2024 and sell it today you would lose (543.00) from holding Nestle SA or give up 4.93% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 50.0% |
| Values | Daily Returns |
Danone PK vs. Nestle SA
Performance |
| Timeline |
| Danone PK |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Nestle SA |
Danone PK and Nestle SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Danone PK and Nestle SA
The main advantage of trading using opposite Danone PK and Nestle SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Danone PK position performs unexpectedly, Nestle 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 Nestle SA will offset losses from the drop in Nestle SA's long position.| Danone PK vs. Heineken NV | Danone PK vs. Reckitt Benckiser Group | Danone PK vs. LOreal Co ADR | Danone PK vs. BASF SE ADR |
| Nestle SA vs. Kellanova | Nestle SA vs. Lancaster Colony | Nestle SA vs. The A2 Milk | Nestle SA vs. Artisan Consumer Goods |
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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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