Correlation Between Nestlé SA and Freshpet

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

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

Diversification Opportunities for Nestlé SA and Freshpet

-0.88

Correlation Coefficient

Nestlé SA  Freshpet

Pay attention - limited upside

The 3 months correlation between Nestlé and Freshpet is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding Nestl SA and Freshpet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freshpet 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 Freshpet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freshpet has no effect on the direction of Nestlé SA i.e., Nestlé SA and Freshpet go up and down completely randomly.

Pair Corralation between Nestlé SA and Freshpet

Assuming the 90 days trading horizon Nestl SA is expected to under-perform the Freshpet. But the stock apears to be less risky and, when comparing its historical volatility, Nestl SA is 2.2 times less risky than Freshpet. The stock trades about -0.01 of its potential returns per unit of risk. The Freshpet is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  8,258  in Freshpet on December 11, 2024 and sell it today you would earn a total of  140.00  from holding Freshpet or generate 1.7% return on investment over 90 days.

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

Nestl SA  vs.  Freshpet

Nestlé 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 uncertain basic indicators, Nestlé SA reported solid returns over the last few months and may actually be approaching a breakup point.

Freshpet

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Nestlé SA and Freshpet

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

The idea behind Nestl SA and Freshpet 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.