Correlation Between Nestlé SA and COFCO Joycome

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

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

Diversification Opportunities for Nestlé SA and COFCO Joycome

0.16

Correlation Coefficient

Nestlé SA  COFCO Joycome

Average diversification

The 3 months correlation between Nestlé and COFCO is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Nestl SA and COFCO Joycome Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COFCO Joycome Foods and Nestlé SA 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 Nestl SA are associated (or correlated) with COFCO Joycome. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COFCO Joycome Foods has no effect on the direction of Nestlé SA i.e., Nestlé SA and COFCO Joycome go up and down completely randomly.

Pair Corralation between Nestlé SA and COFCO Joycome

Assuming the 90 days trading horizon Nestl SA is expected to generate 0.64 times more return on investment than COFCO Joycome. However, Nestl SA is 1.56 times less risky than COFCO Joycome. It trades about 0.14 of its potential returns per unit of risk. COFCO Joycome Foods is currently generating about 0.05 per unit of risk. If you would invest  8,240  in Nestl SA on December 1, 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 Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Nestl SA  vs.  COFCO Joycome Foods

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.

COFCO Joycome Foods

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in COFCO Joycome Foods are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, COFCO Joycome may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Nestlé SA and COFCO Joycome

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

The idea behind Nestl SA and COFCO Joycome Foods 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.