Correlation Between Nestl SA and Ebro Foods

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

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

Diversification Opportunities for Nestl SA and Ebro Foods

-0.25

Correlation Coefficient

Nestl SA  Ebro Foods

Very good diversification

The 3 months correlation between Nestl and Ebro is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Nestl SA and Ebro Foods SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ebro Foods SA and Nestl 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 Ebro Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ebro Foods SA has no effect on the direction of Nestl SA i.e., Nestl SA and Ebro Foods go up and down completely randomly.

Pair Corralation between Nestl SA and Ebro Foods

Assuming the 90 days trading horizon Nestl SA is expected to under-perform the Ebro Foods. In addition to that, Nestl SA is 1.04 times more volatile than Ebro Foods SA. It trades about -0.2 of its total potential returns per unit of risk. Ebro Foods SA is currently generating about 0.03 per unit of volatility. If you would invest  1,558  in Ebro Foods SA on September 5, 2024 and sell it today you would earn a total of  26.00  from holding Ebro Foods SA or generate 1.67% return on investment over 90 days.

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

Nestl SA  vs.  Ebro Foods SA

Nestl SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nestl SA 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 January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Ebro Foods SA

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ebro Foods SA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Ebro Foods is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Nestl SA and Ebro Foods

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

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