Correlation Between International Business and Nestle India

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

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

Diversification Opportunities for International Business and Nestle India

0.19

Correlation Coefficient

International Business  Nestle India

Average diversification

The 3 months correlation between International and Nestle is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine 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 International Business 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 International Business Machines 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 International Business i.e., International Business and Nestle India go up and down completely randomly.

Pair Corralation between International Business and Nestle India

Considering the 90-day investment horizon International Business Machines is expected to generate 1.45 times more return on investment than Nestle India. However, International Business is 1.45 times more volatile than Nestle India Limited. It trades about -0.02 of its potential returns per unit of risk. Nestle India Limited is currently generating about -0.24 per unit of risk. If you would invest  22,535  in International Business Machines on October 5, 2024 and sell it today you would lose (541.00) from holding International Business Machines or give up 2.4% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

International Business Machine  vs.  Nestle India Limited

International Business

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Business Machines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental drivers, International Business is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the 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 conflicting 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 International Business and Nestle India

The main advantage of trading using opposite International Business and Nestle India positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Business 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 International Business Machines 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.