Correlation Between Nestle SA and China Mengniu
Can any of the company-specific risk be diversified away by investing in both Nestle SA and China Mengniu 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 Nestle SA and China Mengniu into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nestle SA ADR and China Mengniu Dairy, you can compare the effects of market volatilities on Nestle SA and China Mengniu 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 Nestle SA with a short position of China Mengniu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nestle SA and China Mengniu.
Diversification Opportunities for Nestle SA and China Mengniu
0.37 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Nestle and China is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Nestle SA ADR and China Mengniu Dairy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Mengniu Dairy and Nestle 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 Nestle SA ADR are associated (or correlated) with China Mengniu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Mengniu Dairy has no effect on the direction of Nestle SA i.e., Nestle SA and China Mengniu go up and down completely randomly.
Pair Corralation between Nestle SA and China Mengniu
Assuming the 90 days horizon Nestle SA ADR is expected to generate 0.64 times more return on investment than China Mengniu. However, Nestle SA ADR is 1.57 times less risky than China Mengniu. It trades about 0.13 of its potential returns per unit of risk. China Mengniu Dairy is currently generating about -0.13 per unit of risk. If you would invest 8,189 in Nestle SA ADR on November 3, 2024 and sell it today you would earn a total of 311.00 from holding Nestle SA ADR or generate 3.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nestle SA ADR vs. China Mengniu Dairy
Performance |
| Timeline |
| Nestle SA ADR |
| China Mengniu Dairy |
Nestle SA and China Mengniu Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nestle SA and China Mengniu
The main advantage of trading using opposite Nestle SA and China Mengniu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nestle SA position performs unexpectedly, China Mengniu 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 China Mengniu will offset losses from the drop in China Mengniu's long position.| Nestle SA vs. Kellanova | Nestle SA vs. Campbell Soup | Nestle SA vs. ConAgra Foods | Nestle SA vs. Hormel Foods |
| China Mengniu vs. Nestle SA ADR | China Mengniu vs. ConAgra Foods | China Mengniu vs. Hormel Foods | China Mengniu vs. Kraft Heinz Co |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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