Correlation Between Nestle SA and American Airlines
Can any of the company-specific risk be diversified away by investing in both Nestle SA and American Airlines 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 Nestle SA and American Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nestle SA and American Airlines Group, you can compare the effects of market volatilities on Nestle SA and American Airlines 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 Nestle SA with a short position of American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nestle SA and American Airlines.
Diversification Opportunities for Nestle SA and American Airlines
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Nestle and American is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Nestle SA and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines and Nestle SA 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 Nestle SA are associated (or correlated) with American Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Airlines has no effect on the direction of Nestle SA i.e., Nestle SA and American Airlines go up and down completely randomly.
Pair Corralation between Nestle SA and American Airlines
Assuming the 90 days horizon Nestle SA is expected to generate 0.43 times more return on investment than American Airlines. However, Nestle SA is 2.34 times less risky than American Airlines. It trades about 0.03 of its potential returns per unit of risk. American Airlines Group is currently generating about -0.11 per unit of risk. If you would invest 10,185 in Nestle SA on January 26, 2024 and sell it today you would earn a total of 77.00 from holding Nestle SA or generate 0.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Nestle SA vs. American Airlines Group
Performance |
| Timeline |
| Nestle SA |
| American Airlines |
Nestle SA and American Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nestle SA and American Airlines
The main advantage of trading using opposite Nestle SA and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nestle SA position performs unexpectedly, American Airlines 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 American Airlines will offset losses from the drop in American Airlines' long position.| Nestle SA vs. Kellanova | Nestle SA vs. Lancaster Colony | Nestle SA vs. The A2 Milk | Nestle SA vs. Artisan Consumer Goods |
| American Airlines vs. Delta Air Lines | American Airlines vs. Southwest Airlines | American Airlines vs. JetBlue Airways Corp | American Airlines vs. Spirit Airlines |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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