Correlation Between Nestle SA and Danone PK

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Can any of the company-specific risk be diversified away by investing in both Nestle SA and Danone PK 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 Danone PK into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nestle SA and Danone PK, you can compare the effects of market volatilities on Nestle SA and Danone PK 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 Danone PK. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nestle SA and Danone PK.

Diversification Opportunities for Nestle SA and Danone PK

-0.32
  Correlation Coefficient

Very good diversification

The 3 months correlation between Nestle and Danone is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Nestle SA and Danone PK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Danone PK 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 Danone PK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Danone PK has no effect on the direction of Nestle SA i.e., Nestle SA and Danone PK go up and down completely randomly.

Pair Corralation between Nestle SA and Danone PK

Assuming the 90 days horizon Nestle SA is expected to generate 1.37 times more return on investment than Danone PK. However, Nestle SA is 1.37 times more volatile than Danone PK. It trades about 0.05 of its potential returns per unit of risk. Danone PK is currently generating about -0.14 per unit of risk. If you would invest  10,520  in Nestle SA on December 30, 2023 and sell it today you would earn a total of  98.00  from holding Nestle SA or generate 0.93% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy31.82%
ValuesDaily Returns

Nestle SA  vs.  Danone PK

 Performance 
       Timeline  
Nestle SA 

Risk-Adjusted Performance

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Over the last 90 days Nestle SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.
Danone PK 

Risk-Adjusted Performance

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Low
 
High
Very Weak
Over the last 90 days Danone PK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Danone PK is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Nestle SA and Danone PK Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Nestle SA and Danone PK

The main advantage of trading using opposite Nestle SA and Danone PK positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nestle SA position performs unexpectedly, Danone PK 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 Danone PK will offset losses from the drop in Danone PK's long position.
The idea behind Nestle SA and Danone PK 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.
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.

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