Correlation Between Nestl SA and Kellogg

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

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

Diversification Opportunities for Nestl SA and Kellogg

-0.55

Correlation Coefficient

Nestl SA  Kellogg

Excellent diversification

The 3 months correlation between Nestl and Kellogg is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Nestl SA and Kellogg Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kellogg Company 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 Kellogg. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kellogg Company has no effect on the direction of Nestl SA i.e., Nestl SA and Kellogg go up and down completely randomly.

Pair Corralation between Nestl SA and Kellogg

Assuming the 90 days trading horizon Nestl SA is expected to generate 2.02 times more return on investment than Kellogg. However, Nestl SA is 2.02 times more volatile than Kellogg Company. It trades about 0.17 of its potential returns per unit of risk. Kellogg Company 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	Very Weak
Accuracy	100.0%
Values	Daily Returns

Nestl SA  vs.  Kellogg Company

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.

Kellogg Company

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kellogg Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Kellogg 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 Kellogg

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

The idea behind Nestl SA and Kellogg Company 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.