Correlation Between Roche Holding and Nestl SA

Can any of the company-specific risk be diversified away by investing in both Roche Holding and Nestl 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 Roche Holding and Nestl SA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Roche Holding AG and Nestl SA, you can compare the effects of market volatilities on Roche Holding and Nestl 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 Roche Holding with a short position of Nestl SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Roche Holding and Nestl SA.

Diversification Opportunities for Roche Holding and Nestl SA

0.08

Correlation Coefficient

Roche Holding  Nestl SA

Significant diversification

The 3 months correlation between Roche and Nestl is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Roche Holding AG and Nestl SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestl SA and Roche Holding 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 Roche Holding AG are associated (or correlated) with Nestl SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestl SA has no effect on the direction of Roche Holding i.e., Roche Holding and Nestl SA go up and down completely randomly.

Pair Corralation between Roche Holding and Nestl SA

Assuming the 90 days trading horizon Roche Holding AG is expected to under-perform the Nestl SA. In addition to that, Roche Holding is 1.24 times more volatile than Nestl SA. It trades about -0.1 of its total potential returns per unit of risk. Nestl SA is currently generating about 0.05 per unit of volatility. If you would invest  9,183  in Nestl SA on January 30, 2024 and sell it today you would earn a total of  87.00  from holding Nestl SA or generate 0.95% return on investment over 90 days.

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

Roche Holding AG  vs.  Nestl SA

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. In spite of latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Nestl SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nestl SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Nestl SA is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Roche Holding and Nestl SA

The main advantage of trading using opposite Roche Holding and Nestl SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Roche Holding position performs unexpectedly, Nestl 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 Nestl SA will offset losses from the drop in Nestl SA's long position.

The idea behind Roche Holding AG and Nestl 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.

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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.