Correlation Between Nestle SA and Lifeway Foods

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

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

Diversification Opportunities for Nestle SA and Lifeway Foods

0.33

Correlation Coefficient

Nestle SA  Lifeway Foods

Weak diversification

The 3 months correlation between Nestle and Lifeway is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Nestle SA and Lifeway Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lifeway Foods 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 Lifeway Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lifeway Foods has no effect on the direction of Nestle SA i.e., Nestle SA and Lifeway Foods go up and down completely randomly.

Pair Corralation between Nestle SA and Lifeway Foods

Assuming the 90 days horizon Nestle SA is expected to under-perform the Lifeway Foods. But the pink sheet apears to be less risky and, when comparing its historical volatility, Nestle SA is 2.53 times less risky than Lifeway Foods. The pink sheet trades about -0.31 of its potential returns per unit of risk. The Lifeway Foods is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  2,443  in Lifeway Foods on September 19, 2024 and sell it today you would lose (103.50) from holding Lifeway Foods or give up 4.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Nestle SA  vs.  Lifeway Foods

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.

Lifeway Foods

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lifeway Foods are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Lifeway Foods showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nestle SA and Lifeway Foods

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

The idea behind Nestle SA and Lifeway Foods 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.