Correlation Between PT Bank and Nestle SA

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

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

Diversification Opportunities for PT Bank and Nestle SA

0.81

Correlation Coefficient

PT Bank  Nestle SA

Very poor diversification

The 3 months correlation between PBCRF and Nestle is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding PT Bank Central and Nestle SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestle SA ADR and PT Bank 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 PT Bank Central are associated (or correlated) with Nestle SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestle SA ADR has no effect on the direction of PT Bank i.e., PT Bank and Nestle SA go up and down completely randomly.

Pair Corralation between PT Bank and Nestle SA

Assuming the 90 days horizon PT Bank Central is expected to under-perform the Nestle SA. In addition to that, PT Bank is 3.83 times more volatile than Nestle SA ADR. It trades about -0.1 of its total potential returns per unit of risk. Nestle SA ADR is currently generating about -0.31 per unit of volatility. If you would invest  9,890  in Nestle SA ADR on September 25, 2024 and sell it today you would lose (1,655) from holding Nestle SA ADR or give up 16.73% of portfolio value over 90 days.

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

PT Bank Central  vs.  Nestle SA ADR

PT Bank Central

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PT Bank Central has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic 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.

Nestle SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with PT Bank and Nestle SA

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

The idea behind PT Bank Central and Nestle SA 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.