Correlation Between Nestlé SA and Lerøy Seafood

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

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

Diversification Opportunities for Nestlé SA and Lerøy Seafood

0.43

Correlation Coefficient

Nestlé SA  Lerøy Seafood

Very weak diversification

The 3 months correlation between Nestlé and Lerøy is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Nestl SA and Lery Seafood Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lery Seafood Group 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 Lerøy Seafood. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lery Seafood Group has no effect on the direction of Nestlé SA i.e., Nestlé SA and Lerøy Seafood go up and down completely randomly.

Pair Corralation between Nestlé SA and Lerøy Seafood

Assuming the 90 days trading horizon Nestl SA is expected to generate 1.08 times more return on investment than Lerøy Seafood. However, Nestlé SA is 1.08 times more volatile than Lery Seafood Group. It trades about 0.23 of its potential returns per unit of risk. Lery Seafood Group is currently generating about 0.06 per unit of risk. If you would invest  7,960  in Nestl SA on December 2, 2024 and sell it today you would earn a total of  1,340  from holding Nestl SA or generate 16.83% 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.  Lery Seafood Group

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.

Lery Seafood Group

Risk-Adjusted Performance

Weak

Over the last 90 days Lery Seafood Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Lerøy Seafood is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Nestlé SA and Lerøy Seafood

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

The idea behind Nestl SA and Lery Seafood Group 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.