Correlation Between Nestl SA and Alcon AG

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

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

Diversification Opportunities for Nestl SA and Alcon AG

0.73

Correlation Coefficient

Nestl SA  Alcon AG

Poor diversification

The 3 months correlation between Nestl and Alcon is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Nestl SA and Alcon AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcon AG 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 Alcon AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alcon AG has no effect on the direction of Nestl SA i.e., Nestl SA and Alcon AG go up and down completely randomly.

Pair Corralation between Nestl SA and Alcon AG

Assuming the 90 days trading horizon Nestl SA is expected to under-perform the Alcon AG. But the stock apears to be less risky and, when comparing its historical volatility, Nestl SA is 1.29 times less risky than Alcon AG. The stock trades about -0.26 of its potential returns per unit of risk. The Alcon AG is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  8,214  in Alcon AG on September 1, 2024 and sell it today you would lose (376.00) from holding Alcon AG or give up 4.58% of portfolio value over 90 days.

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

Nestl SA  vs.  Alcon AG

Nestl 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. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in December 2024. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Alcon AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alcon AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, Alcon AG is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Nestl SA and Alcon AG

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

The idea behind Nestl SA and Alcon AG 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.