Correlation Between Ebro Foods and Nestl SA

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

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

Diversification Opportunities for Ebro Foods and Nestl SA

-0.25

Correlation Coefficient

Ebro Foods  Nestl SA

Very good diversification

The 3 months correlation between Ebro and Nestl is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Ebro Foods SA and Nestl SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestl SA and Ebro Foods 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 Ebro Foods SA 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 Ebro Foods i.e., Ebro Foods and Nestl SA go up and down completely randomly.

Pair Corralation between Ebro Foods and Nestl SA

Assuming the 90 days horizon Ebro Foods SA is expected to generate 0.97 times more return on investment than Nestl SA. However, Ebro Foods SA is 1.03 times less risky than Nestl SA. It trades about 0.03 of its potential returns per unit of risk. Nestl SA is currently generating about -0.2 per unit of risk. If you would invest  1,558  in Ebro Foods SA on September 5, 2024 and sell it today you would earn a total of  26.00  from holding Ebro Foods SA or generate 1.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Ebro Foods SA  vs.  Nestl SA

Ebro Foods SA

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ebro Foods SA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Ebro Foods 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

0 of 100

Very Weak

Over the last 90 days Nestl SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Ebro Foods and Nestl SA

The main advantage of trading using opposite Ebro Foods and Nestl SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ebro Foods 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 Ebro Foods SA 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.