Correlation Between Nestl SA and Roche Holding

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

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

Diversification Opportunities for Nestl SA and Roche Holding

0.91

Correlation Coefficient

Nestl SA  Roche Holding

Almost no diversification

The 3 months correlation between Nestl and Roche is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Nestl SA and Roche Holding AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Roche Holding 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 Roche Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Roche Holding AG has no effect on the direction of Nestl SA i.e., Nestl SA and Roche Holding go up and down completely randomly.

Pair Corralation between Nestl SA and Roche Holding

Assuming the 90 days trading horizon Nestl SA is expected to generate 1.22 times more return on investment than Roche Holding. However, Nestl SA is 1.22 times more volatile than Roche Holding AG. It trades about 0.22 of its potential returns per unit of risk. Roche Holding AG is currently generating about 0.26 per unit of risk. If you would invest  7,488  in Nestl SA on December 30, 2024 and sell it today you would earn a total of  1,536  from holding Nestl SA or generate 20.51% return on investment over 90 days.

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

Nestl SA  vs.  Roche Holding AG

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.

Roche Holding AG

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Roche Holding AG are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal technical and fundamental indicators, Roche Holding showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nestl SA and Roche Holding

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

The idea behind Nestl SA and Roche Holding 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..