Correlation Between Nestl SA and Lerøy Seafood

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

Diversification Opportunities for Nestl SA and Lerøy Seafood

0.11

Correlation Coefficient

Nestl SA  Lerøy Seafood

Average diversification

The 3 months correlation between Nestl and Lerøy is 0.11. 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 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 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 Nestl SA i.e., Nestl SA and Lerøy Seafood go up and down completely randomly.

Pair Corralation between Nestl SA and Lerøy Seafood

Assuming the 90 days trading horizon Nestl SA is expected to generate 1.0 times more return on investment than Lerøy Seafood. However, Nestl SA is 1.0 times more volatile than Lery Seafood Group. It trades about 0.16 of its potential returns per unit of risk. Lery Seafood Group is currently generating about 0.08 per unit of risk. If you would invest  8,040  in Nestl SA on December 28, 2024 and sell it today you would earn a total of  1,360  from holding Nestl SA or generate 16.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Nestl SA  vs.  Lery Seafood Group

Nestl SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nestl SA are ranked lower than 12 (%) 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.

Lery Seafood Group

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lery Seafood Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Lerøy Seafood may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Nestl SA and Lerøy Seafood

The main advantage of trading using opposite Nestl SA and Lerøy Seafood positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nestl 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.