Correlation Between Nestle SA and Danone SA
Can any of the company-specific risk be diversified away by investing in both Nestle SA and Danone 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 Nestle SA and Danone SA 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 SA, you can compare the effects of market volatilities on Nestle SA and Danone 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 Nestle SA with a short position of Danone SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nestle SA and Danone SA.
Diversification Opportunities for Nestle SA and Danone SA
Very poor diversification
The 3 months correlation between Nestle and Danone is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Nestle SA and Danone SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Danone SA 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 SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Danone SA has no effect on the direction of Nestle SA i.e., Nestle SA and Danone SA go up and down completely randomly.
Pair Corralation between Nestle SA and Danone SA
Assuming the 90 days horizon Nestle SA is expected to under-perform the Danone SA. But the pink sheet apears to be less risky and, when comparing its historical volatility, Nestle SA is 1.27 times less risky than Danone SA. The pink sheet trades about -0.02 of its potential returns per unit of risk. The Danone SA is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 6,463 in Danone SA on January 24, 2024 and sell it today you would lose (38.00) from holding Danone SA or give up 0.59% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nestle SA vs. Danone SA
Performance |
| Timeline |
| Nestle SA |
| Danone SA |
Nestle SA and Danone SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nestle SA and Danone SA
The main advantage of trading using opposite Nestle SA and Danone SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nestle SA position performs unexpectedly, Danone 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 Danone SA will offset losses from the drop in Danone SA's long position.| Nestle SA vs. Kellanova | Nestle SA vs. Lancaster Colony | Nestle SA vs. The A2 Milk | Nestle SA vs. Artisan Consumer Goods |
| Danone SA vs. Kellanova | Danone SA vs. Lancaster Colony | Danone SA vs. The A2 Milk | Danone 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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