Correlation Between Nestle India and Alkali Metals

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

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

Diversification Opportunities for Nestle India and Alkali Metals

0.43

Correlation Coefficient

Nestle India  Alkali Metals

Very weak diversification

The 3 months correlation between Nestle and Alkali is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Nestle India Limited and Alkali Metals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alkali Metals Limited and Nestle India 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 India Limited are associated (or correlated) with Alkali Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alkali Metals Limited has no effect on the direction of Nestle India i.e., Nestle India and Alkali Metals go up and down completely randomly.

Pair Corralation between Nestle India and Alkali Metals

Assuming the 90 days trading horizon Nestle India Limited is expected to generate 19.93 times more return on investment than Alkali Metals. However, Nestle India is 19.93 times more volatile than Alkali Metals Limited. It trades about 0.06 of its potential returns per unit of risk. Alkali Metals Limited is currently generating about 0.0 per unit of risk. If you would invest  187,775  in Nestle India Limited on October 11, 2024 and sell it today you would earn a total of  34,215  from holding Nestle India Limited or generate 18.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.79%
Values	Daily Returns

Nestle India Limited  vs.  Alkali Metals Limited

Nestle India Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nestle India Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Alkali Metals Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alkali Metals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Nestle India and Alkali Metals

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

The idea behind Nestle India Limited and Alkali Metals Limited 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.