Correlation Between Amada and Nestle SA
Can any of the company-specific risk be diversified away by investing in both Amada and Nestle 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 Amada and Nestle SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amada Co and Nestle SA, you can compare the effects of market volatilities on Amada and Nestle 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 Amada with a short position of Nestle SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amada and Nestle SA.
Diversification Opportunities for Amada and Nestle SA
Excellent diversification
The 3 months correlation between Amada and Nestle is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Amada Co and Nestle SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestle SA and Amada 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 Amada Co are associated (or correlated) with Nestle SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestle SA has no effect on the direction of Amada i.e., Amada and Nestle SA go up and down completely randomly.
Pair Corralation between Amada and Nestle SA
Assuming the 90 days horizon Amada Co is expected to generate 1.13 times more return on investment than Nestle SA. However, Amada is 1.13 times more volatile than Nestle SA. It trades about 0.06 of its potential returns per unit of risk. Nestle SA is currently generating about -0.03 per unit of risk. If you would invest 4,070 in Amada Co on February 7, 2024 and sell it today you would earn a total of 384.00 from holding Amada Co or generate 9.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Amada Co vs. Nestle SA
Performance |
| Timeline |
| Amada |
| Nestle SA |
Amada and Nestle SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amada and Nestle SA
The main advantage of trading using opposite Amada and Nestle SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amada position performs unexpectedly, Nestle 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 Nestle SA will offset losses from the drop in Nestle SA's long position.The idea behind Amada Co and Nestle SA pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Nestle SA vs. Bank Mandiri Persero | Nestle SA vs. Astra International Tbk | Nestle SA vs. United Tractors Tbk |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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