Correlation Between Gladstone Investment and Nestl SA

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

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

Diversification Opportunities for Gladstone Investment and Nestl SA

-0.06

Correlation Coefficient

Gladstone Investment  Nestl SA

Good diversification

The 3 months correlation between Gladstone and Nestl is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Gladstone Investment and Nestl SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestl SA and Gladstone Investment 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 Gladstone Investment 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 Gladstone Investment i.e., Gladstone Investment and Nestl SA go up and down completely randomly.

Pair Corralation between Gladstone Investment and Nestl SA

Assuming the 90 days horizon Gladstone Investment is expected to generate 14.78 times less return on investment than Nestl SA. But when comparing it to its historical volatility, Gladstone Investment is 1.05 times less risky than Nestl SA. It trades about 0.01 of its potential returns per unit of risk. Nestl SA is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  7,920  in Nestl SA on December 24, 2024 and sell it today you would earn a total of  1,680  from holding Nestl SA or generate 21.21% return on investment over 90 days.

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

Gladstone Investment  vs.  Nestl SA

Gladstone Investment

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Gladstone Investment are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Gladstone Investment is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Nestl SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Nestl SA are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Nestl SA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gladstone Investment and Nestl SA

The main advantage of trading using opposite Gladstone Investment and Nestl SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gladstone Investment 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 Gladstone Investment 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.