Correlation Between Invest Capital and Nestle Pakistan

Can any of the company-specific risk be diversified away by investing in both Invest Capital and Nestle Pakistan 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 Invest Capital and Nestle Pakistan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Invest Capital Investment and Nestle Pakistan, you can compare the effects of market volatilities on Invest Capital and Nestle Pakistan 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 Invest Capital with a short position of Nestle Pakistan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invest Capital and Nestle Pakistan.

Diversification Opportunities for Invest Capital and Nestle Pakistan

0.45

Correlation Coefficient

Invest Capital  Nestle Pakistan

Very weak diversification

The 3 months correlation between Invest and Nestle is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Invest Capital Investment and Nestle Pakistan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestle Pakistan and Invest Capital 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 Invest Capital Investment are associated (or correlated) with Nestle Pakistan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestle Pakistan has no effect on the direction of Invest Capital i.e., Invest Capital and Nestle Pakistan go up and down completely randomly.

Pair Corralation between Invest Capital and Nestle Pakistan

Assuming the 90 days trading horizon Invest Capital Investment is expected to generate 3.4 times more return on investment than Nestle Pakistan. However, Invest Capital is 3.4 times more volatile than Nestle Pakistan. It trades about 0.04 of its potential returns per unit of risk. Nestle Pakistan is currently generating about -0.01 per unit of risk. If you would invest  146.00  in Invest Capital Investment on September 14, 2024 and sell it today you would earn a total of  31.00  from holding Invest Capital Investment or generate 21.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	86.31%
Values	Daily Returns

Invest Capital Investment  vs.  Nestle Pakistan

Invest Capital Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invest Capital Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward indicators, Invest Capital is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Nestle Pakistan

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nestle Pakistan are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Nestle Pakistan may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Invest Capital and Nestle Pakistan

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

The idea behind Invest Capital Investment and Nestle Pakistan 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.

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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.