Correlation Between Nestl SA and Plastic Omnium

Can any of the company-specific risk be diversified away by investing in both Nestl 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 Nestl 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 Nestl 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 Nestl SA with a short position of Plastic Omnium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nestl SA and Plastic Omnium.

Diversification Opportunities for Nestl SA and Plastic Omnium

-0.24

Correlation Coefficient

Nestl SA  Plastic Omnium

Very good diversification

The 3 months correlation between Nestl and Plastic is -0.24. 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 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 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 Nestl SA i.e., Nestl SA and Plastic Omnium go up and down completely randomly.

Pair Corralation between Nestl SA and Plastic Omnium

Assuming the 90 days trading horizon Nestl SA is expected to generate 0.51 times more return on investment than Plastic Omnium. However, Nestl SA is 1.96 times less risky than Plastic Omnium. It trades about 0.17 of its potential returns per unit of risk. Plastic Omnium is currently generating about -0.02 per unit of risk. If you would invest  8,040  in Nestl SA on December 30, 2024 and sell it today you would earn a total of  1,440  from holding Nestl SA or generate 17.91% 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.  Plastic Omnium

Nestl SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nestl SA are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Nestl SA reported solid returns over the last few months and may actually be approaching a breakup point.

Plastic Omnium

Risk-Adjusted Performance

Very Weak

Over the last 90 days Plastic Omnium has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Plastic Omnium is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Nestl SA and Plastic Omnium

The main advantage of trading using opposite Nestl SA and Plastic Omnium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nestl 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.