Correlation Between Nestle Bhd and IOI Bhd

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

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

Diversification Opportunities for Nestle Bhd and IOI Bhd

-0.55

Correlation Coefficient

Nestle Bhd  IOI Bhd

Excellent diversification

The 3 months correlation between Nestle and IOI is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Nestle Bhd and IOI Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IOI Bhd and Nestle Bhd 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 Bhd are associated (or correlated) with IOI Bhd. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IOI Bhd has no effect on the direction of Nestle Bhd i.e., Nestle Bhd and IOI Bhd go up and down completely randomly.

Pair Corralation between Nestle Bhd and IOI Bhd

Assuming the 90 days trading horizon Nestle Bhd is expected to under-perform the IOI Bhd. In addition to that, Nestle Bhd is 1.17 times more volatile than IOI Bhd. It trades about -0.02 of its total potential returns per unit of risk. IOI Bhd is currently generating about 0.03 per unit of volatility. If you would invest  381.00  in IOI Bhd on September 13, 2024 and sell it today you would earn a total of  5.00  from holding IOI Bhd or generate 1.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Nestle Bhd  vs.  IOI Bhd

Nestle Bhd

Risk-Adjusted Performance

0 of 100

Very Weak

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

IOI Bhd

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in IOI Bhd are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, IOI Bhd is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Nestle Bhd and IOI Bhd

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

The idea behind Nestle Bhd and IOI Bhd 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.