Correlation Between Nestle SA and Roche Holding

Can any of the company-specific risk be diversified away by investing in both Nestle 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 Nestle 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 Nestle SA and Roche Holding AG, you can compare the effects of market volatilities on Nestle 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 Nestle SA with a short position of Roche Holding. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nestle SA and Roche Holding.

Diversification Opportunities for Nestle SA and Roche Holding

0.52

Correlation Coefficient

Nestle SA  Roche Holding

Very weak diversification

The 3 months correlation between Nestle and Roche is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Nestle 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 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 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 Nestle SA i.e., Nestle SA and Roche Holding go up and down completely randomly.

Pair Corralation between Nestle SA and Roche Holding

Assuming the 90 days horizon Nestle SA is expected to generate 0.71 times more return on investment than Roche Holding. However, Nestle SA is 1.41 times less risky than Roche Holding. It trades about -0.08 of its potential returns per unit of risk. Roche Holding AG is currently generating about -0.06 per unit of risk. If you would invest  12,661  in Nestle SA on February 3, 2024 and sell it today you would lose (2,553) from holding Nestle SA or give up 20.16% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Nestle SA  vs.  Roche Holding AG

Nestle SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nestle SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Roche Holding AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Roche Holding AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Nestle SA and Roche Holding

The main advantage of trading using opposite Nestle SA and Roche Holding positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nestle 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.

The idea behind Nestle SA and Roche Holding AG 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.

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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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.