Correlation Between Alkali Metals and Nestle India

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

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

Diversification Opportunities for Alkali Metals and Nestle India

0.43

Correlation Coefficient

Alkali Metals  Nestle India

Very weak diversification

The 3 months correlation between Alkali and Nestle is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Alkali Metals Limited and Nestle India Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestle India Limited and Alkali Metals 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 Alkali Metals Limited are associated (or correlated) with Nestle India. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestle India Limited has no effect on the direction of Alkali Metals i.e., Alkali Metals and Nestle India go up and down completely randomly.

Pair Corralation between Alkali Metals and Nestle India

Assuming the 90 days trading horizon Alkali Metals is expected to generate 350.97 times less return on investment than Nestle India. But when comparing it to its historical volatility, Alkali Metals Limited is 19.93 times less risky than Nestle India. It trades about 0.0 of its potential returns per unit of risk. Nestle India Limited is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  187,775  in Nestle India Limited on October 11, 2024 and sell it today you would earn a total of  34,215  from holding Nestle India Limited or generate 18.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.79%
Values	Daily Returns

Alkali Metals Limited  vs.  Nestle India Limited

Alkali Metals Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alkali Metals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Nestle India Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nestle India Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Alkali Metals and Nestle India

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

The idea behind Alkali Metals Limited and Nestle India Limited 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.