Correlation Between Nestle SA and Chevron Corp

Can any of the company-specific risk be diversified away by investing in both Nestle SA and Chevron Corp 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 Chevron Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nestle SA and Chevron Corp, you can compare the effects of market volatilities on Nestle SA and Chevron Corp 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 Chevron Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nestle SA and Chevron Corp.

Diversification Opportunities for Nestle SA and Chevron Corp

-0.63

Correlation Coefficient

Nestle SA  Chevron Corp

Excellent diversification

The 3 months correlation between Nestle and Chevron is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Nestle SA and Chevron Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron Corp 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 Chevron Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chevron Corp has no effect on the direction of Nestle SA i.e., Nestle SA and Chevron Corp go up and down completely randomly.

Pair Corralation between Nestle SA and Chevron Corp

Assuming the 90 days horizon Nestle SA is expected to under-perform the Chevron Corp. But the pink sheet apears to be less risky and, when comparing its historical volatility, Nestle SA is 1.2 times less risky than Chevron Corp. The pink sheet trades about -0.01 of its potential returns per unit of risk. The Chevron Corp is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  15,147  in Chevron Corp on January 31, 2024 and sell it today you would earn a total of  1,486  from holding Chevron Corp or generate 9.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Nestle SA  vs.  Chevron Corp

Nestle SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nestle SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting 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.

Chevron Corp

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron Corp are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Chevron Corp showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nestle SA and Chevron Corp

The main advantage of trading using opposite Nestle SA and Chevron Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nestle SA position performs unexpectedly, Chevron Corp 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 Chevron Corp will offset losses from the drop in Chevron Corp's long position.

The idea behind Nestle SA and Chevron Corp 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.

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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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.