Correlation Between CDL INVESTMENT and Nestlé SA

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

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

Diversification Opportunities for CDL INVESTMENT and Nestlé SA

-0.03

Correlation Coefficient

CDL INVESTMENT  Nestlé SA

Good diversification

The 3 months correlation between CDL and Nestlé is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding CDL INVESTMENT and Nestl SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestlé SA and CDL 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 CDL INVESTMENT are associated (or correlated) with Nestlé SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestlé SA has no effect on the direction of CDL INVESTMENT i.e., CDL INVESTMENT and Nestlé SA go up and down completely randomly.

Pair Corralation between CDL INVESTMENT and Nestlé SA

Assuming the 90 days trading horizon CDL INVESTMENT is expected to under-perform the Nestlé SA. In addition to that, CDL INVESTMENT is 1.3 times more volatile than Nestl SA. It trades about -0.01 of its total potential returns per unit of risk. Nestl SA is currently generating about 0.14 per unit of volatility. If you would invest  8,240  in Nestl SA on December 2, 2024 and sell it today you would earn a total of  1,060  from holding Nestl SA or generate 12.86% return on investment over 90 days.

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

CDL INVESTMENT  vs.  Nestl SA

CDL INVESTMENT

Risk-Adjusted Performance

Very Weak

Over the last 90 days CDL INVESTMENT has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, CDL INVESTMENT is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Nestlé SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nestl SA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Nestlé SA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CDL INVESTMENT and Nestlé SA

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

The idea behind CDL 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.