Correlation Between Nestle SA and Toyo Suisan

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

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

Diversification Opportunities for Nestle SA and Toyo Suisan

-0.69

Correlation Coefficient

Nestle SA  Toyo Suisan

Excellent diversification

The 3 months correlation between Nestle and Toyo is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Nestle SA and Toyo Suisan Kaisha in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyo Suisan Kaisha 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 Toyo Suisan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toyo Suisan Kaisha has no effect on the direction of Nestle SA i.e., Nestle SA and Toyo Suisan go up and down completely randomly.

Pair Corralation between Nestle SA and Toyo Suisan

Assuming the 90 days horizon Nestle SA is expected to generate 8.39 times less return on investment than Toyo Suisan. But when comparing it to its historical volatility, Nestle SA is 1.98 times less risky than Toyo Suisan. It trades about 0.06 of its potential returns per unit of risk. Toyo Suisan Kaisha is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  5,950  in Toyo Suisan Kaisha on February 7, 2024 and sell it today you would earn a total of  769.00  from holding Toyo Suisan Kaisha or generate 12.92% 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.  Toyo Suisan Kaisha

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 weak 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.

Toyo Suisan Kaisha

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Toyo Suisan Kaisha are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking signals, Toyo Suisan showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nestle SA and Toyo Suisan

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

The idea behind Nestle SA and Toyo Suisan Kaisha 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.