Correlation Between Emmi AG and Nestle SA

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

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

Diversification Opportunities for Emmi AG and Nestle SA

0.6

Correlation Coefficient

Emmi AG  Nestle SA

Poor diversification

The 3 months correlation between Emmi and Nestle is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Emmi AG and Nestle SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestle SA and Emmi AG 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 Emmi AG 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 Emmi AG i.e., Emmi AG and Nestle SA go up and down completely randomly.

Pair Corralation between Emmi AG and Nestle SA

Assuming the 90 days horizon Emmi AG is expected to generate 0.06 times more return on investment than Nestle SA. However, Emmi AG is 16.23 times less risky than Nestle SA. It trades about -0.13 of its potential returns per unit of risk. Nestle SA is currently generating about -0.28 per unit of risk. If you would invest  99,500  in Emmi AG on October 9, 2024 and sell it today you would lose (500.00) from holding Emmi AG or give up 0.5% of portfolio value over 90 days.

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

Emmi AG  vs.  Nestle SA

Emmi AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Emmi AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Emmi AG is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Nestle SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Emmi AG and Nestle SA

The main advantage of trading using opposite Emmi AG and Nestle SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emmi AG 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 Emmi AG 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.