Correlation Between Dow Jones and Nestl SA
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Nestl 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 Dow Jones and Nestl SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Nestl SA, you can compare the effects of market volatilities on Dow Jones and Nestl 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 Dow Jones with a short position of Nestl SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Nestl SA.
Diversification Opportunities for Dow Jones and Nestl SA
Good diversification
The 3 months correlation between Dow and Nestl is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Nestl SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestl SA and Dow Jones 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 Dow Jones Industrial are associated (or correlated) with Nestl SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestl SA has no effect on the direction of Dow Jones i.e., Dow Jones and Nestl SA go up and down completely randomly.
Pair Corralation between Dow Jones and Nestl SA
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.47 times more return on investment than Nestl SA. However, Dow Jones Industrial is 2.15 times less risky than Nestl SA. It trades about 0.42 of its potential returns per unit of risk. Nestl SA is currently generating about 0.14 per unit of risk. If you would invest 4,239,227 in Dow Jones Industrial on November 2, 2024 and sell it today you would earn a total of 248,986 from holding Dow Jones Industrial or generate 5.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 90.48% |
| Values | Daily Returns |
Dow Jones Industrial vs. Nestl SA
Performance |
| Timeline |
Dow Jones and Nestl SA Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Nestl SA
Pair trading matchups for Nestl SA
Pair Trading with Dow Jones and Nestl SA
The main advantage of trading using opposite Dow Jones and Nestl SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Nestl 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 Nestl SA will offset losses from the drop in Nestl SA's long position.| Dow Jones vs. Boston Properties | Dow Jones vs. Suntory Beverage Food | Dow Jones vs. Envista Holdings Corp | Dow Jones vs. Fevertree Drinks Plc |
| Nestl SA vs. AECOM TECHNOLOGY | Nestl SA vs. GREENX METALS LTD | Nestl SA vs. Easy Software AG | Nestl SA vs. Aluminum of |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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