Correlation Between Quice Food and Nestle Pakistan

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

By analyzing existing cross correlation between Quice Food Industries and Nestle Pakistan, you can compare the effects of market volatilities on Quice Food and Nestle Pakistan 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 Quice Food with a short position of Nestle Pakistan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Quice Food and Nestle Pakistan.

Diversification Opportunities for Quice Food and Nestle Pakistan

-0.2

Correlation Coefficient

Quice Food  Nestle Pakistan

Good diversification

The 3 months correlation between Quice and Nestle is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Quice Food Industries and Nestle Pakistan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestle Pakistan and Quice Food 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 Quice Food Industries are associated (or correlated) with Nestle Pakistan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestle Pakistan has no effect on the direction of Quice Food i.e., Quice Food and Nestle Pakistan go up and down completely randomly.

Pair Corralation between Quice Food and Nestle Pakistan

Assuming the 90 days trading horizon Quice Food is expected to generate 5.04 times less return on investment than Nestle Pakistan. In addition to that, Quice Food is 1.85 times more volatile than Nestle Pakistan. It trades about 0.01 of its total potential returns per unit of risk. Nestle Pakistan is currently generating about 0.1 per unit of volatility. If you would invest  663,287  in Nestle Pakistan on December 2, 2024 and sell it today you would earn a total of  71,756  from holding Nestle Pakistan or generate 10.82% return on investment over 90 days.

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

Quice Food Industries  vs.  Nestle Pakistan

Quice Food Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Quice Food Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward indicators, Quice Food is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Nestle Pakistan

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nestle Pakistan are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Nestle Pakistan may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Quice Food and Nestle Pakistan

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

The idea behind Quice Food Industries and Nestle Pakistan 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.