Correlation Between Nomad Foods and Herbalife Nutrition

Can any of the company-specific risk be diversified away by investing in both Nomad Foods and Herbalife Nutrition 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 Nomad Foods and Herbalife Nutrition into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nomad Foods and Herbalife Nutrition, you can compare the effects of market volatilities on Nomad Foods and Herbalife Nutrition 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 Nomad Foods with a short position of Herbalife Nutrition. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nomad Foods and Herbalife Nutrition.

Diversification Opportunities for Nomad Foods and Herbalife Nutrition

0.19

Correlation Coefficient

Nomad Foods  Herbalife Nutrition

Average diversification

The 3 months correlation between Nomad and Herbalife is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Nomad Foods and Herbalife Nutrition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Herbalife Nutrition and Nomad Foods 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 Nomad Foods are associated (or correlated) with Herbalife Nutrition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Herbalife Nutrition has no effect on the direction of Nomad Foods i.e., Nomad Foods and Herbalife Nutrition go up and down completely randomly.

Pair Corralation between Nomad Foods and Herbalife Nutrition

Given the investment horizon of 90 days Nomad Foods is expected to generate 3.61 times less return on investment than Herbalife Nutrition. But when comparing it to its historical volatility, Nomad Foods is 8.1 times less risky than Herbalife Nutrition. It trades about 0.45 of its potential returns per unit of risk. Herbalife Nutrition is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  596.00  in Herbalife Nutrition on November 29, 2024 and sell it today you would earn a total of  233.00  from holding Herbalife Nutrition or generate 39.09% return on investment over 90 days.

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

Nomad Foods  vs.  Herbalife Nutrition

Nomad Foods

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nomad Foods are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, Nomad Foods is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Herbalife Nutrition

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Herbalife Nutrition are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady essential indicators, Herbalife Nutrition reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nomad Foods and Herbalife Nutrition

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

The idea behind Nomad Foods and Herbalife Nutrition 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.

Check out your portfolio center.

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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.