Correlation Between Kraft Heinz and Nestl SA

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

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

Diversification Opportunities for Kraft Heinz and Nestl SA

0.11

Correlation Coefficient

Kraft Heinz  Nestl SA

Average diversification

The 3 months correlation between Kraft and Nestl is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Kraft Heinz Co and Nestl SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestl SA and Kraft Heinz 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 Kraft Heinz Co 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 Kraft Heinz i.e., Kraft Heinz and Nestl SA go up and down completely randomly.

Pair Corralation between Kraft Heinz and Nestl SA

Assuming the 90 days trading horizon Kraft Heinz Co is expected to under-perform the Nestl SA. In addition to that, Kraft Heinz is 1.18 times more volatile than Nestl SA. It trades about -0.02 of its total potential returns per unit of risk. Nestl SA is currently generating about 0.16 per unit of volatility. If you would invest  8,040  in Nestl SA on December 29, 2024 and sell it today you would earn a total of  1,360  from holding Nestl SA or generate 16.92% return on investment over 90 days.

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

Kraft Heinz Co  vs.  Nestl SA

Kraft Heinz

Risk-Adjusted Performance

Very Weak

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

Nestl SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nestl SA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Nestl SA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kraft Heinz and Nestl SA

The main advantage of trading using opposite Kraft Heinz and Nestl SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kraft Heinz 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 Kraft Heinz Co 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.