Correlation Between Ajinomoto and Nestle SA

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

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

Diversification Opportunities for Ajinomoto and Nestle SA

0.12

Correlation Coefficient

Ajinomoto  Nestle SA

Average diversification

The 3 months correlation between Ajinomoto and Nestle is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Ajinomoto Co ADR and Nestle SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestle SA and Ajinomoto 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 Ajinomoto Co ADR are associated (or correlated) with Nestle SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestle SA has no effect on the direction of Ajinomoto i.e., Ajinomoto and Nestle SA go up and down completely randomly.

Pair Corralation between Ajinomoto and Nestle SA

Assuming the 90 days horizon Ajinomoto is expected to generate 26.1 times less return on investment than Nestle SA. But when comparing it to its historical volatility, Ajinomoto Co ADR is 1.01 times less risky than Nestle SA. It trades about 0.01 of its potential returns per unit of risk. Nestle SA is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  8,217  in Nestle SA on December 22, 2024 and sell it today you would earn a total of  1,983  from holding Nestle SA or generate 24.13% return on investment over 90 days.

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

Ajinomoto Co ADR  vs.  Nestle SA

Ajinomoto Co ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ajinomoto Co ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Ajinomoto is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Nestle SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Nestle SA are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical and fundamental indicators, Nestle SA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ajinomoto and Nestle SA

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

The idea behind Ajinomoto Co ADR and Nestle 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.