Correlation Between Nestle SA and Kikkoman Corp

Can any of the company-specific risk be diversified away by investing in both Nestle SA and Kikkoman Corp 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 Kikkoman Corp 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 Kikkoman Corp ADR, you can compare the effects of market volatilities on Nestle SA and Kikkoman Corp 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 Kikkoman Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nestle SA and Kikkoman Corp.

Diversification Opportunities for Nestle SA and Kikkoman Corp

-0.89

Correlation Coefficient

Nestle SA  Kikkoman Corp

Pay attention - limited upside

The 3 months correlation between Nestle and Kikkoman is -0.89. Overlapping area represents the amount of risk that can be diversified away by holding Nestle SA ADR and Kikkoman Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kikkoman Corp ADR 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 Kikkoman Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kikkoman Corp ADR has no effect on the direction of Nestle SA i.e., Nestle SA and Kikkoman Corp go up and down completely randomly.

Pair Corralation between Nestle SA and Kikkoman Corp

Assuming the 90 days horizon Nestle SA ADR is expected to generate 0.32 times more return on investment than Kikkoman Corp. However, Nestle SA ADR is 3.11 times less risky than Kikkoman Corp. It trades about 0.38 of its potential returns per unit of risk. Kikkoman Corp ADR is currently generating about -0.09 per unit of risk. If you would invest  9,133  in Nestle SA ADR on December 20, 2024 and sell it today you would earn a total of  1,212  from holding Nestle SA ADR or generate 13.27% 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.  Kikkoman Corp ADR

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 20 (%) 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.

Kikkoman Corp ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kikkoman Corp ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Nestle SA and Kikkoman Corp

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

The idea behind Nestle SA ADR and Kikkoman Corp ADR 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.