Correlation Between Retail Estates and Nestl SA

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

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

Diversification Opportunities for Retail Estates and Nestl SA

0.58

Correlation Coefficient

Retail Estates  Nestl SA

Very weak diversification

The 3 months correlation between Retail and Nestl is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Retail Estates NV and Nestl SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestl SA and Retail Estates 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 Retail Estates NV are associated (or correlated) with Nestl SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestl SA has no effect on the direction of Retail Estates i.e., Retail Estates and Nestl SA go up and down completely randomly.

Pair Corralation between Retail Estates and Nestl SA

Assuming the 90 days horizon Retail Estates is expected to generate 23.1 times less return on investment than Nestl SA. But when comparing it to its historical volatility, Retail Estates NV is 1.47 times less risky than Nestl SA. It trades about 0.01 of its potential returns per unit of risk. Nestl SA is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  8,040  in Nestl SA on December 29, 2024 and sell it today you would earn a total of  1,360  from holding Nestl SA or generate 16.92% return on investment over 90 days.

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

Retail Estates NV  vs.  Nestl SA

Retail Estates NV

Risk-Adjusted Performance

Very Weak

Over the last 90 days Retail Estates NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Retail Estates is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Nestl SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nestl SA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Nestl SA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Retail Estates and Nestl SA

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

The idea behind Retail Estates NV and Nestl SA 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.