Correlation Between Emmi AG and Nestl SA
Can any of the company-specific risk be diversified away by investing in both Emmi AG 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 Emmi AG and Nestl SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Emmi AG and Nestl SA, you can compare the effects of market volatilities on Emmi AG 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 Emmi AG with a short position of Nestl SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emmi AG and Nestl SA.
Diversification Opportunities for Emmi AG and Nestl SA
Almost no diversification
The 3 months correlation between Emmi and Nestl is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Emmi AG and Nestl SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestl SA and Emmi AG 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 Emmi AG 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 Emmi AG i.e., Emmi AG and Nestl SA go up and down completely randomly.
Pair Corralation between Emmi AG and Nestl SA
Assuming the 90 days trading horizon Emmi AG is expected to generate 1.05 times more return on investment than Nestl SA. However, Emmi AG is 1.05 times more volatile than Nestl SA. It trades about -0.42 of its potential returns per unit of risk. Nestl SA is currently generating about -0.55 per unit of risk. If you would invest 85,600 in Emmi AG on August 24, 2024 and sell it today you would lose (7,600) from holding Emmi AG or give up 8.88% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Emmi AG vs. Nestl SA
Performance |
| Timeline |
| Emmi AG |
| Nestl SA |
Emmi AG and Nestl SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emmi AG and Nestl SA
The main advantage of trading using opposite Emmi AG and Nestl SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emmi AG 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.| Emmi AG vs. Santhera Pharmaceuticals Holding | Emmi AG vs. Newron Pharmaceuticals SpA | Emmi AG vs. Basilea Pharmaceutica AG | Emmi AG vs. Evolva Holding SA |
| Nestl SA vs. Novartis AG | Nestl SA vs. Roche Holding AG | Nestl SA vs. Zurich Insurance Group | Nestl SA vs. Swiss Re AG |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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