Correlation Between Danone SA and Nomad Foods

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

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

Diversification Opportunities for Danone SA and Nomad Foods

0.35

Correlation Coefficient

Danone SA  Nomad Foods

Weak diversification

The 3 months correlation between Danone and Nomad is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Danone SA and Nomad Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nomad Foods and Danone SA 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 Danone SA are associated (or correlated) with Nomad Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nomad Foods has no effect on the direction of Danone SA i.e., Danone SA and Nomad Foods go up and down completely randomly.

Pair Corralation between Danone SA and Nomad Foods

Assuming the 90 days horizon Danone SA is expected to generate 0.76 times more return on investment than Nomad Foods. However, Danone SA is 1.31 times less risky than Nomad Foods. It trades about -0.1 of its potential returns per unit of risk. Nomad Foods is currently generating about -0.11 per unit of risk. If you would invest  7,125  in Danone SA on September 23, 2024 and sell it today you would lose (530.00) from holding Danone SA or give up 7.44% of portfolio value over 90 days.

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

Danone SA  vs.  Nomad Foods

Danone SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Danone SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Nomad Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nomad Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Danone SA and Nomad Foods

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

The idea behind Danone SA and Nomad Foods 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.