Correlation Between Nestlé SA and Plastic Omnium

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

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

Diversification Opportunities for Nestlé SA and Plastic Omnium

0.23

Correlation Coefficient

Nestlé SA  Plastic Omnium

Modest diversification

The 3 months correlation between Nestlé and Plastic is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Nestl SA and Plastic Omnium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plastic Omnium 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 Plastic Omnium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plastic Omnium has no effect on the direction of Nestlé SA i.e., Nestlé SA and Plastic Omnium go up and down completely randomly.

Pair Corralation between Nestlé SA and Plastic Omnium

Assuming the 90 days trading horizon Nestlé SA is expected to generate 1.59 times less return on investment than Plastic Omnium. But when comparing it to its historical volatility, Nestl SA is 1.9 times less risky than Plastic Omnium. It trades about 0.14 of its potential returns per unit of risk. Plastic Omnium is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  855.00  in Plastic Omnium on December 2, 2024 and sell it today you would earn a total of  167.00  from holding Plastic Omnium or generate 19.53% return on investment over 90 days.

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

Nestl SA  vs.  Plastic Omnium

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.

Plastic Omnium

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Plastic Omnium are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Plastic Omnium unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nestlé SA and Plastic Omnium

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

The idea behind Nestl SA and Plastic Omnium 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.