Correlation Between Nestl SA and Zurich Insurance

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

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

Diversification Opportunities for Nestl SA and Zurich Insurance

-0.81

Correlation Coefficient

Nestl SA  Zurich Insurance

Pay attention - limited upside

The 3 months correlation between Nestl and Zurich is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Nestl SA and Zurich Insurance Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zurich Insurance 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 Zurich Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zurich Insurance has no effect on the direction of Nestl SA i.e., Nestl SA and Zurich Insurance go up and down completely randomly.

Pair Corralation between Nestl SA and Zurich Insurance

Assuming the 90 days trading horizon Nestl SA is expected to under-perform the Zurich Insurance. In addition to that, Nestl SA is 1.22 times more volatile than Zurich Insurance Group. It trades about -0.26 of its total potential returns per unit of risk. Zurich Insurance Group is currently generating about 0.23 per unit of volatility. If you would invest  49,600  in Zurich Insurance Group on September 2, 2024 and sell it today you would earn a total of  6,260  from holding Zurich Insurance Group or generate 12.62% return on investment over 90 days.

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

Nestl SA  vs.  Zurich Insurance Group

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 January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Zurich Insurance

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Zurich Insurance Group are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Zurich Insurance may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Nestl SA and Zurich Insurance

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

The idea behind Nestl SA and Zurich Insurance 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.