Correlation Between Nestle Pakistan and Nimir Industrial

Can any of the company-specific risk be diversified away by investing in both Nestle Pakistan and Nimir Industrial 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 Nestle Pakistan and Nimir Industrial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nestle Pakistan and Nimir Industrial Chemical, you can compare the effects of market volatilities on Nestle Pakistan and Nimir Industrial 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 Nestle Pakistan with a short position of Nimir Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nestle Pakistan and Nimir Industrial.

Diversification Opportunities for Nestle Pakistan and Nimir Industrial

0.55

Correlation Coefficient

Nestle Pakistan  Nimir Industrial

Very weak diversification

The 3 months correlation between Nestle and Nimir is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Nestle Pakistan and Nimir Industrial Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nimir Industrial Chemical and Nestle Pakistan 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 Nestle Pakistan are associated (or correlated) with Nimir Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nimir Industrial Chemical has no effect on the direction of Nestle Pakistan i.e., Nestle Pakistan and Nimir Industrial go up and down completely randomly.

Pair Corralation between Nestle Pakistan and Nimir Industrial

Assuming the 90 days trading horizon Nestle Pakistan is expected to generate 2.73 times less return on investment than Nimir Industrial. But when comparing it to its historical volatility, Nestle Pakistan is 2.09 times less risky than Nimir Industrial. It trades about 0.02 of its potential returns per unit of risk. Nimir Industrial Chemical is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  13,900  in Nimir Industrial Chemical on October 9, 2024 and sell it today you would earn a total of  118.00  from holding Nimir Industrial Chemical or generate 0.85% return on investment over 90 days.

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

Nestle Pakistan  vs.  Nimir Industrial Chemical

Nestle Pakistan

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nestle Pakistan are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Nestle Pakistan may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Nimir Industrial Chemical

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nimir Industrial Chemical are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nimir Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nestle Pakistan and Nimir Industrial

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

The idea behind Nestle Pakistan and Nimir Industrial Chemical 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.