Correlation Between China Mengniu and Nestle SA
Can any of the company-specific risk be diversified away by investing in both China Mengniu and Nestle 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 China Mengniu and Nestle SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Mengniu Dairy and Nestle SA ADR, you can compare the effects of market volatilities on China Mengniu and Nestle 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 China Mengniu with a short position of Nestle SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Mengniu and Nestle SA.
Diversification Opportunities for China Mengniu and Nestle SA
-0.59 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between China and Nestle is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding China Mengniu Dairy and Nestle SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestle SA ADR and China Mengniu 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 China Mengniu Dairy are associated (or correlated) with Nestle SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestle SA ADR has no effect on the direction of China Mengniu i.e., China Mengniu and Nestle SA go up and down completely randomly.
Pair Corralation between China Mengniu and Nestle SA
Assuming the 90 days horizon China Mengniu Dairy is expected to under-perform the Nestle SA. In addition to that, China Mengniu is 2.5 times more volatile than Nestle SA ADR. It trades about -0.03 of its total potential returns per unit of risk. Nestle SA ADR is currently generating about -0.04 per unit of volatility. If you would invest 10,963 in Nestle SA ADR on August 28, 2024 and sell it today you would lose (2,420) from holding Nestle SA ADR or give up 22.07% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Mengniu Dairy vs. Nestle SA ADR
Performance |
| Timeline |
| China Mengniu Dairy |
| Nestle SA ADR |
China Mengniu and Nestle SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Mengniu and Nestle SA
The main advantage of trading using opposite China Mengniu and Nestle SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Mengniu position performs unexpectedly, Nestle 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 Nestle SA will offset losses from the drop in Nestle SA's long position.| China Mengniu vs. Artisan Consumer Goods | China Mengniu vs. The A2 Milk | China Mengniu vs. General Mills |
| Nestle SA vs. Kellanova | Nestle SA vs. Campbell Soup | Nestle SA vs. ConAgra Foods | Nestle SA vs. Hormel Foods |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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