Correlation Between Nestle India and Vishnu Chemicals

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

Diversification Opportunities for Nestle India and Vishnu Chemicals

0.52

Correlation Coefficient

Nestle India  Vishnu Chemicals

Very weak diversification

The 3 months correlation between Nestle and Vishnu is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Nestle India Limited and Vishnu Chemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vishnu 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 Vishnu Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vishnu Chemicals has no effect on the direction of Nestle India i.e., Nestle India and Vishnu Chemicals go up and down completely randomly.

Pair Corralation between Nestle India and Vishnu Chemicals

Assuming the 90 days trading horizon Nestle India is expected to generate 4.03 times less return on investment than Vishnu Chemicals. But when comparing it to its historical volatility, Nestle India Limited is 2.19 times less risky than Vishnu Chemicals. It trades about 0.09 of its potential returns per unit of risk. Vishnu Chemicals Limited is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  38,790  in Vishnu Chemicals Limited on October 25, 2024 and sell it today you would earn a total of  2,765  from holding Vishnu Chemicals Limited or generate 7.13% return on investment over 90 days.

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

Nestle India Limited  vs.  Vishnu Chemicals 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.

Vishnu Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vishnu Chemicals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's technical indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Nestle India and Vishnu Chemicals

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

The idea behind Nestle India Limited and Vishnu 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.