Correlation Between Nestle Pakistan and Unity Foods

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

By analyzing existing cross correlation between Nestle Pakistan and Unity Foods, you can compare the effects of market volatilities on Nestle Pakistan and Unity Foods 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 Unity Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nestle Pakistan and Unity Foods.

Diversification Opportunities for Nestle Pakistan and Unity Foods

0.8

Correlation Coefficient

Nestle Pakistan  Unity Foods

Very poor diversification

The 3 months correlation between Nestle and Unity is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Nestle Pakistan and Unity Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unity Foods 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 Unity Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unity Foods has no effect on the direction of Nestle Pakistan i.e., Nestle Pakistan and Unity Foods go up and down completely randomly.

Pair Corralation between Nestle Pakistan and Unity Foods

Assuming the 90 days trading horizon Nestle Pakistan is expected to under-perform the Unity Foods. But the stock apears to be less risky and, when comparing its historical volatility, Nestle Pakistan is 1.52 times less risky than Unity Foods. The stock trades about -0.01 of its potential returns per unit of risk. The Unity Foods is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,604  in Unity Foods on October 26, 2024 and sell it today you would earn a total of  631.00  from holding Unity Foods or generate 24.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	88.51%
Values	Daily Returns

Nestle Pakistan  vs.  Unity Foods

Nestle Pakistan

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nestle Pakistan are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nestle Pakistan may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Unity Foods

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Unity Foods are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward indicators, Unity Foods disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nestle Pakistan and Unity Foods

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

The idea behind Nestle Pakistan and Unity Foods 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.

Check out your portfolio center.

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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.