Correlation Between Nestlé SA and Lifeway Foods

Can any of the company-specific risk be diversified away by investing in both Nestlé SA and Lifeway 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 Nestlé SA and Lifeway 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 Lifeway Foods, you can compare the effects of market volatilities on Nestlé SA and Lifeway 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 Nestlé SA with a short position of Lifeway Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nestlé SA and Lifeway Foods.

Diversification Opportunities for Nestlé SA and Lifeway Foods

0.58

Correlation Coefficient

Nestlé SA  Lifeway Foods

Very weak diversification

The 3 months correlation between Nestlé and Lifeway is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Nestl SA and Lifeway Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lifeway Foods 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 Lifeway Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lifeway Foods has no effect on the direction of Nestlé SA i.e., Nestlé SA and Lifeway Foods go up and down completely randomly.

Pair Corralation between Nestlé SA and Lifeway Foods

Assuming the 90 days trading horizon Nestl SA is expected to under-perform the Lifeway Foods. But the stock apears to be less risky and, when comparing its historical volatility, Nestl SA is 3.54 times less risky than Lifeway Foods. The stock trades about -0.19 of its potential returns per unit of risk. The Lifeway Foods is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,400  in Lifeway Foods on October 7, 2024 and sell it today you would earn a total of  0.00  from holding Lifeway Foods or generate 0.0% return on investment over 90 days.

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

Nestl SA  vs.  Lifeway Foods

Nestlé 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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Lifeway Foods

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lifeway Foods are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Lifeway Foods is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Nestlé SA and Lifeway Foods

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

The idea behind Nestl SA and Lifeway Foods 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.