Correlation Between Nestle India and Kavveri Telecom

Can any of the company-specific risk be diversified away by investing in both Nestle India and Kavveri Telecom 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 Kavveri Telecom 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 Kavveri Telecom Products, you can compare the effects of market volatilities on Nestle India and Kavveri Telecom 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 Kavveri Telecom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nestle India and Kavveri Telecom.

Diversification Opportunities for Nestle India and Kavveri Telecom

-0.31

Correlation Coefficient

Nestle India  Kavveri Telecom

Very good diversification

The 3 months correlation between Nestle and Kavveri is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Nestle India Limited and Kavveri Telecom Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kavveri Telecom Products 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 Kavveri Telecom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kavveri Telecom Products has no effect on the direction of Nestle India i.e., Nestle India and Kavveri Telecom go up and down completely randomly.

Pair Corralation between Nestle India and Kavveri Telecom

Assuming the 90 days trading horizon Nestle India Limited is expected to generate 0.37 times more return on investment than Kavveri Telecom. However, Nestle India Limited is 2.7 times less risky than Kavveri Telecom. It trades about 0.06 of its potential returns per unit of risk. Kavveri Telecom Products is currently generating about -0.14 per unit of risk. If you would invest  215,265  in Nestle India Limited on December 27, 2024 and sell it today you would earn a total of  9,080  from holding Nestle India Limited or generate 4.22% return on investment over 90 days.

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

Nestle India Limited  vs.  Kavveri Telecom Products

Nestle India Limited

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nestle India Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong forward indicators, Nestle India is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Kavveri Telecom Products

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kavveri Telecom Products 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 basic indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Nestle India and Kavveri Telecom

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

The idea behind Nestle India Limited and Kavveri Telecom Products 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.