Correlation Between Nestle SA and Central Garden

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

By analyzing existing cross correlation between Nestle SA and Central Garden Pet, you can compare the effects of market volatilities on Nestle SA and Central Garden 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 Central Garden. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nestle SA and Central Garden.

Diversification Opportunities for Nestle SA and Central Garden

-0.68

Correlation Coefficient

Nestle SA  Central Garden

Excellent diversification

The 3 months correlation between Nestle and Central is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Nestle SA and Central Garden Pet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Garden Pet 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 Central Garden. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Garden Pet has no effect on the direction of Nestle SA i.e., Nestle SA and Central Garden go up and down completely randomly.

Pair Corralation between Nestle SA and Central Garden

Assuming the 90 days horizon Nestle SA is expected to under-perform the Central Garden. But the pink sheet apears to be less risky and, when comparing its historical volatility, Nestle SA is 1.71 times less risky than Central Garden. The pink sheet trades about -0.27 of its potential returns per unit of risk. The Central Garden Pet is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3,316  in Central Garden Pet on September 19, 2024 and sell it today you would earn a total of  357.00  from holding Central Garden Pet or generate 10.77% return on investment over 90 days.

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

Nestle SA  vs.  Central Garden Pet

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 uncertain 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.

Central Garden Pet

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Central Garden Pet are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Central Garden may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Nestle SA and Central Garden

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

The idea behind Nestle SA and Central Garden Pet 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..