Correlation Between Grand Havana and Nestle SA

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

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

Diversification Opportunities for Grand Havana and Nestle SA

-0.29

Correlation Coefficient

Grand Havana  Nestle SA

Very good diversification

The 3 months correlation between Grand and Nestle is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Grand Havana and Nestle SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestle SA ADR and Grand Havana 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 Grand Havana 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 ADR has no effect on the direction of Grand Havana i.e., Grand Havana and Nestle SA go up and down completely randomly.

Pair Corralation between Grand Havana and Nestle SA

Given the investment horizon of 90 days Grand Havana is expected to under-perform the Nestle SA. In addition to that, Grand Havana is 9.73 times more volatile than Nestle SA ADR. It trades about -0.1 of its total potential returns per unit of risk. Nestle SA ADR is currently generating about -0.22 per unit of volatility. If you would invest  8,568  in Nestle SA ADR on September 22, 2024 and sell it today you would lose (360.00) from holding Nestle SA ADR or give up 4.2% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Grand Havana  vs.  Nestle SA ADR

Grand Havana

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Grand Havana are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Grand Havana may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Nestle SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nestle SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Grand Havana and Nestle SA

The main advantage of trading using opposite Grand Havana and Nestle SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Grand Havana 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 Grand Havana and Nestle SA ADR 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.