Correlation Between Central Bank and Nestle India

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

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

Diversification Opportunities for Central Bank and Nestle India

0.53

Correlation Coefficient

Central Bank  Nestle India

Very weak diversification

The 3 months correlation between Central and Nestle is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Central Bank of and Nestle India Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestle India Limited and Central Bank 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 Central Bank of are associated (or correlated) with Nestle India. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestle India Limited has no effect on the direction of Central Bank i.e., Central Bank and Nestle India go up and down completely randomly.

Pair Corralation between Central Bank and Nestle India

Assuming the 90 days trading horizon Central Bank of is expected to generate 2.23 times more return on investment than Nestle India. However, Central Bank is 2.23 times more volatile than Nestle India Limited. It trades about 0.0 of its potential returns per unit of risk. Nestle India Limited is currently generating about -0.16 per unit of risk. If you would invest  5,982  in Central Bank of on September 13, 2024 and sell it today you would lose (83.00) from holding Central Bank of or give up 1.39% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Central Bank of  vs.  Nestle India Limited

Central Bank

Risk-Adjusted Performance

0 of 100

Very Weak

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

Nestle India Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nestle India Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's forward indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Central Bank and Nestle India

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

The idea behind Central Bank of and Nestle India Limited 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.