Correlation Between IOI Bhd and Nestle Bhd

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

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

Diversification Opportunities for IOI Bhd and Nestle Bhd

0.45

Correlation Coefficient

IOI Bhd  Nestle Bhd

Very weak diversification

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

Pair Corralation between IOI Bhd and Nestle Bhd

Assuming the 90 days trading horizon IOI Bhd is expected to generate 0.54 times more return on investment than Nestle Bhd. However, IOI Bhd is 1.87 times less risky than Nestle Bhd. It trades about -0.06 of its potential returns per unit of risk. Nestle Bhd is currently generating about -0.22 per unit of risk. If you would invest  381.00  in IOI Bhd on December 30, 2024 and sell it today you would lose (16.00) from holding IOI Bhd or give up 4.2% of portfolio value over 90 days.

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

IOI Bhd  vs.  Nestle Bhd

IOI Bhd

Risk-Adjusted Performance

Very Weak

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

Nestle Bhd

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nestle Bhd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with IOI Bhd and Nestle Bhd

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

The idea behind IOI Bhd and Nestle Bhd 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.