Correlation Between Nestle India and Thirumalai Chemicals

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

Diversification Opportunities for Nestle India and Thirumalai Chemicals

-0.18

Correlation Coefficient

Nestle India  Thirumalai Chemicals

Good diversification

The 3 months correlation between Nestle and Thirumalai is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Nestle India Limited and Thirumalai Chemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thirumalai Chemicals 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 Thirumalai Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thirumalai Chemicals has no effect on the direction of Nestle India i.e., Nestle India and Thirumalai Chemicals go up and down completely randomly.

Pair Corralation between Nestle India and Thirumalai Chemicals

Assuming the 90 days trading horizon Nestle India Limited is expected to generate 0.38 times more return on investment than Thirumalai Chemicals. However, Nestle India Limited is 2.63 times less risky than Thirumalai Chemicals. It trades about 0.07 of its potential returns per unit of risk. Thirumalai Chemicals Limited is currently generating about -0.11 per unit of risk. If you would invest  214,430  in Nestle India Limited on December 30, 2024 and sell it today you would earn a total of  10,645  from holding Nestle India Limited or generate 4.96% 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.  Thirumalai Chemicals Limited

Nestle India Limited

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nestle India Limited are ranked lower than 5 (%) 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 recent stock price confusion, may contribute to short-horizon losses for the traders.

Thirumalai Chemicals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Thirumalai Chemicals 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 fundamental indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Nestle India and Thirumalai Chemicals

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

The idea behind Nestle India Limited and Thirumalai Chemicals 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.