Correlation Between Koninklijke Philips and Heineken

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

By analyzing existing cross correlation between Koninklijke Philips NV and Heineken, you can compare the effects of market volatilities on Koninklijke Philips and Heineken 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 Koninklijke Philips with a short position of Heineken. Check out your portfolio center. Please also check ongoing floating volatility patterns of Koninklijke Philips and Heineken.

Diversification Opportunities for Koninklijke Philips and Heineken

0.19

Correlation Coefficient

Koninklijke Philips  Heineken

Average diversification

The 3 months correlation between Koninklijke and Heineken is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Koninklijke Philips NV and Heineken in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heineken and Koninklijke Philips 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 Koninklijke Philips NV are associated (or correlated) with Heineken. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heineken has no effect on the direction of Koninklijke Philips i.e., Koninklijke Philips and Heineken go up and down completely randomly.

Pair Corralation between Koninklijke Philips and Heineken

Assuming the 90 days trading horizon Koninklijke Philips is expected to generate 1.21 times less return on investment than Heineken. But when comparing it to its historical volatility, Koninklijke Philips NV is 1.88 times less risky than Heineken. It trades about 0.15 of its potential returns per unit of risk. Heineken is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  7,120  in Heineken on November 19, 2024 and sell it today you would earn a total of  828.00  from holding Heineken or generate 11.63% return on investment over 90 days.

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

Koninklijke Philips NV  vs.  Heineken

Koninklijke Philips

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Koninklijke Philips NV are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Koninklijke Philips may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Heineken

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Heineken are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Heineken may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Koninklijke Philips and Heineken

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

The idea behind Koninklijke Philips NV and Heineken 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.