Correlation Between CPE Technology and Nestle Bhd

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

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

Diversification Opportunities for CPE Technology and Nestle Bhd

0.2

Correlation Coefficient

CPE Technology  Nestle Bhd

Modest diversification

The 3 months correlation between CPE and Nestle is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding CPE Technology Berhad and Nestle Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestle Bhd and CPE Technology 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 CPE Technology Berhad 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 CPE Technology i.e., CPE Technology and Nestle Bhd go up and down completely randomly.

Pair Corralation between CPE Technology and Nestle Bhd

Assuming the 90 days trading horizon CPE Technology Berhad is expected to generate 1.59 times more return on investment than Nestle Bhd. However, CPE Technology is 1.59 times more volatile than Nestle Bhd. It trades about -0.12 of its potential returns per unit of risk. Nestle Bhd is currently generating about -0.38 per unit of risk. If you would invest  92.00  in CPE Technology Berhad on December 2, 2024 and sell it today you would lose (8.00) from holding CPE Technology Berhad or give up 8.7% of portfolio value over 90 days.

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

CPE Technology Berhad  vs.  Nestle Bhd

CPE Technology Berhad

Risk-Adjusted Performance

Very Weak

Over the last 90 days CPE Technology Berhad has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company 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 CPE Technology and Nestle Bhd

The main advantage of trading using opposite CPE Technology and Nestle Bhd positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CPE Technology 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 CPE Technology Berhad 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.