Correlation Between Nestl SA and PSP Swiss

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

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

Diversification Opportunities for Nestl SA and PSP Swiss

0.52

Correlation Coefficient

Nestl SA  PSP Swiss

Very weak diversification

The 3 months correlation between Nestl and PSP is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Nestl SA and PSP Swiss Property in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PSP Swiss Property 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 PSP Swiss. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PSP Swiss Property has no effect on the direction of Nestl SA i.e., Nestl SA and PSP Swiss go up and down completely randomly.

Pair Corralation between Nestl SA and PSP Swiss

Assuming the 90 days trading horizon Nestl SA is expected to generate 2.21 times more return on investment than PSP Swiss. However, Nestl SA is 2.21 times more volatile than PSP Swiss Property. It trades about 0.38 of its potential returns per unit of risk. PSP Swiss Property is currently generating about -0.02 per unit of risk. If you would invest  7,786  in Nestl SA on December 5, 2024 and sell it today you would earn a total of  1,190  from holding Nestl SA or generate 15.28% 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.  PSP Swiss Property

Nestl SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Nestl SA are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Nestl SA showed solid returns over the last few months and may actually be approaching a breakup point.

PSP Swiss Property

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PSP Swiss Property are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, PSP Swiss 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 PSP Swiss

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

The idea behind Nestl SA and PSP Swiss Property 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.