Correlation Between Oriental Food and Nestle Bhd

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

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

Diversification Opportunities for Oriental Food and Nestle Bhd

0.72

Correlation Coefficient

Oriental Food  Nestle Bhd

Poor diversification

The 3 months correlation between Oriental and Nestle is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Oriental Food Industries and Nestle Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestle Bhd and Oriental 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 Oriental Food Industries 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 Oriental Food i.e., Oriental Food and Nestle Bhd go up and down completely randomly.

Pair Corralation between Oriental Food and Nestle Bhd

Assuming the 90 days trading horizon Oriental Food Industries is expected to under-perform the Nestle Bhd. In addition to that, Oriental Food is 1.45 times more volatile than Nestle Bhd. It trades about -0.02 of its total potential returns per unit of risk. Nestle Bhd is currently generating about -0.02 per unit of volatility. If you would invest  10,094  in Nestle Bhd on September 13, 2024 and sell it today you would lose (216.00) from holding Nestle Bhd or give up 2.14% of portfolio value over 90 days.

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

Oriental Food Industries  vs.  Nestle Bhd

Oriental Food Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Oriental Food Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Oriental Food 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 Oriental Food and Nestle Bhd

The main advantage of trading using opposite Oriental Food and Nestle Bhd positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Oriental Food 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 Oriental Food Industries 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.