Correlation Between Nestle SA and Branded Legacy

Can any of the company-specific risk be diversified away by investing in both Nestle SA and Branded Legacy 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 SA and Branded Legacy into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Nestle SA and Branded Legacy

0.72

Correlation Coefficient

Nestle SA  Branded Legacy

Poor diversification

The 3 months correlation between Nestle and Branded is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Nestle SA and Branded Legacy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Branded Legacy and Nestle SA 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 SA are associated (or correlated) with Branded Legacy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Branded Legacy has no effect on the direction of Nestle SA i.e., Nestle SA and Branded Legacy go up and down completely randomly.

Pair Corralation between Nestle SA and Branded Legacy

Assuming the 90 days horizon Nestle SA is expected to generate 0.06 times more return on investment than Branded Legacy. However, Nestle SA is 16.88 times less risky than Branded Legacy. It trades about -0.24 of its potential returns per unit of risk. Branded Legacy is currently generating about -0.1 per unit of risk. If you would invest  8,700  in Nestle SA on September 29, 2024 and sell it today you would lose (437.00) from holding Nestle SA or give up 5.02% of portfolio value over 90 days.

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

Nestle SA  vs.  Branded Legacy

Nestle SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nestle SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Branded Legacy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Branded Legacy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Nestle SA and Branded Legacy

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

The idea behind Nestle SA and Branded Legacy 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.