Correlation Between Nestlé SA and BRF SA

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

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

Diversification Opportunities for Nestlé SA and BRF SA

-0.66

Correlation Coefficient

Nestlé SA  BRF SA

Excellent diversification

The 3 months correlation between Nestlé and BRF is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Nestl SA and BRF SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BRF SA 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 BRF SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BRF SA has no effect on the direction of Nestlé SA i.e., Nestlé SA and BRF SA go up and down completely randomly.

Pair Corralation between Nestlé SA and BRF SA

Assuming the 90 days trading horizon Nestl SA is expected to under-perform the BRF SA. But the stock apears to be less risky and, when comparing its historical volatility, Nestl SA is 2.86 times less risky than BRF SA. The stock trades about -0.15 of its potential returns per unit of risk. The BRF SA is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  388.00  in BRF SA on September 23, 2024 and sell it today you would earn a total of  18.00  from holding BRF SA or generate 4.64% return on investment over 90 days.

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

Nestl SA  vs.  BRF SA

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 uncertain 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.

BRF SA

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BRF SA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, BRF SA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Nestlé SA and BRF SA

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

The idea behind Nestl SA and BRF 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.