Correlation Between Nestle SA and Emmi AG

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

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

Diversification Opportunities for Nestle SA and Emmi AG

-0.85

Correlation Coefficient

Nestle SA  Emmi AG

Pay attention - limited upside

The 3 months correlation between Nestle and Emmi is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding Nestle SA ADR and Emmi AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emmi AG 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 ADR are associated (or correlated) with Emmi AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emmi AG has no effect on the direction of Nestle SA i.e., Nestle SA and Emmi AG go up and down completely randomly.

Pair Corralation between Nestle SA and Emmi AG

Assuming the 90 days horizon Nestle SA ADR is expected to generate 1.26 times more return on investment than Emmi AG. However, Nestle SA is 1.26 times more volatile than Emmi AG. It trades about 0.25 of its potential returns per unit of risk. Emmi AG is currently generating about -0.13 per unit of risk. If you would invest  8,234  in Nestle SA ADR on December 20, 2024 and sell it today you would earn a total of  2,008  from holding Nestle SA ADR or generate 24.39% return on investment over 90 days.

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

Nestle SA ADR  vs.  Emmi AG

Nestle SA ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Nestle SA ADR are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting technical and fundamental indicators, Nestle SA showed solid returns over the last few months and may actually be approaching a breakup point.

Emmi AG

Risk-Adjusted Performance

Very Weak

Over the last 90 days Emmi AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Nestle SA and Emmi AG

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

The idea behind Nestle SA ADR and Emmi AG 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.