Correlation Between Nestl SA and Novartis
Can any of the company-specific risk be diversified away by investing in both Nestl SA and Novartis 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 Nestl SA and Novartis into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nestl SA and Novartis AG, you can compare the effects of market volatilities on Nestl SA and Novartis 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 Nestl SA with a short position of Novartis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nestl SA and Novartis.
Diversification Opportunities for Nestl SA and Novartis
Almost no diversification
The 3 months correlation between Nestl and Novartis is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Nestl SA and Novartis AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novartis AG and Nestl 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 Nestl SA are associated (or correlated) with Novartis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novartis AG has no effect on the direction of Nestl SA i.e., Nestl SA and Novartis go up and down completely randomly.
Pair Corralation between Nestl SA and Novartis
Assuming the 90 days trading horizon Nestl SA is expected to generate 0.71 times more return on investment than Novartis. However, Nestl SA is 1.41 times less risky than Novartis. It trades about -0.09 of its potential returns per unit of risk. Novartis AG is currently generating about -0.14 per unit of risk. If you would invest 7,600 in Nestl SA on October 23, 2024 and sell it today you would lose (154.00) from holding Nestl SA or give up 2.03% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nestl SA vs. Novartis AG
Performance |
| Timeline |
| Nestl SA |
| Novartis AG |
Nestl SA and Novartis Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nestl SA and Novartis
The main advantage of trading using opposite Nestl SA and Novartis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nestl SA position performs unexpectedly, Novartis 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 Novartis will offset losses from the drop in Novartis' long position.| Nestl SA vs. Novartis AG | Nestl SA vs. Roche Holding AG | Nestl SA vs. Zurich Insurance Group | Nestl SA vs. Swiss Re AG |
| Novartis vs. Roche Holding AG | Novartis vs. Nestl SA | Novartis vs. Zurich Insurance Group | Novartis 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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