Correlation Between Nestle India and SIL Investments

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

Diversification Opportunities for Nestle India and SIL Investments

0.01

Correlation Coefficient

Nestle India  SIL Investments

Significant diversification

The 3 months correlation between Nestle and SIL is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Nestle India Limited and SIL Investments Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SIL Investments 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 SIL Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SIL Investments has no effect on the direction of Nestle India i.e., Nestle India and SIL Investments go up and down completely randomly.

Pair Corralation between Nestle India and SIL Investments

Assuming the 90 days trading horizon Nestle India Limited is expected to generate 0.47 times more return on investment than SIL Investments. However, Nestle India Limited is 2.13 times less risky than SIL Investments. It trades about 0.09 of its potential returns per unit of risk. SIL Investments Limited is currently generating about -0.15 per unit of risk. If you would invest  217,000  in Nestle India Limited on October 25, 2024 and sell it today you would earn a total of  3,780  from holding Nestle India Limited or generate 1.74% return on investment over 90 days.

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

Nestle India Limited  vs.  SIL Investments 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 fairly strong forward indicators, Nestle India is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

SIL Investments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SIL Investments Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward indicators, SIL Investments is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Nestle India and SIL Investments

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

The idea behind Nestle India Limited and SIL Investments 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.