Correlation Between FGV Holdings and Nestle Bhd

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

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

Diversification Opportunities for FGV Holdings and Nestle Bhd

-0.51

Correlation Coefficient

FGV Holdings  Nestle Bhd

Excellent diversification

The 3 months correlation between FGV and Nestle is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding FGV Holdings Bhd and Nestle Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestle Bhd and FGV Holdings 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 FGV Holdings Bhd are associated (or correlated) with Nestle Bhd. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestle Bhd has no effect on the direction of FGV Holdings i.e., FGV Holdings and Nestle Bhd go up and down completely randomly.

Pair Corralation between FGV Holdings and Nestle Bhd

Assuming the 90 days trading horizon FGV Holdings Bhd is expected to under-perform the Nestle Bhd. But the stock apears to be less risky and, when comparing its historical volatility, FGV Holdings Bhd is 1.03 times less risky than Nestle Bhd. The stock trades about -0.12 of its potential returns per unit of risk. The Nestle Bhd is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  9,500  in Nestle Bhd on September 24, 2024 and sell it today you would earn a total of  200.00  from holding Nestle Bhd or generate 2.11% return on investment over 90 days.

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

FGV Holdings Bhd  vs.  Nestle Bhd

FGV Holdings Bhd

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in FGV Holdings Bhd are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, FGV Holdings is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

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.

Pair Trading with FGV Holdings and Nestle Bhd

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

The idea behind FGV Holdings Bhd and Nestle 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.