Correlation Between Nestl SA and Roche Holding
Can any of the company-specific risk be diversified away by investing in both Nestl SA and Roche Holding 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 Roche Holding into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nestl SA and Roche Holding AG, you can compare the effects of market volatilities on Nestl SA and Roche Holding 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 Roche Holding. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nestl SA and Roche Holding.
Diversification Opportunities for Nestl SA and Roche Holding
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Nestl and Roche is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Nestl SA and Roche Holding AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Roche Holding 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 Roche Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Roche Holding AG has no effect on the direction of Nestl SA i.e., Nestl SA and Roche Holding go up and down completely randomly.
Pair Corralation between Nestl SA and Roche Holding
Assuming the 90 days trading horizon Nestl SA is expected to generate 0.75 times more return on investment than Roche Holding. However, Nestl SA is 1.33 times less risky than Roche Holding. It trades about -0.52 of its potential returns per unit of risk. Roche Holding AG is currently generating about -0.46 per unit of risk. If you would invest 8,440 in Nestl SA on August 27, 2024 and sell it today you would lose (840.00) from holding Nestl SA or give up 9.95% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nestl SA vs. Roche Holding AG
Performance |
| Timeline |
| Nestl SA |
| Roche Holding AG |
Nestl SA and Roche Holding Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nestl SA and Roche Holding
The main advantage of trading using opposite Nestl SA and Roche Holding positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nestl SA position performs unexpectedly, Roche Holding 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 Roche Holding will offset losses from the drop in Roche Holding's 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 |
| Roche Holding vs. Novartis AG | Roche Holding vs. Zurich Insurance Group | Roche Holding vs. Nestl SA | Roche Holding vs. Lonza Group 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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