Correlation Between Nestlé SA and Kraft Heinz

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

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

Diversification Opportunities for Nestlé SA and Kraft Heinz

0.79

Correlation Coefficient

Nestlé SA  Kraft Heinz

Poor diversification

The 3 months correlation between Nestlé and Kraft is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Nestl SA and Kraft Heinz Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kraft Heinz and Nestlé 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 Nestl SA are associated (or correlated) with Kraft Heinz. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kraft Heinz has no effect on the direction of Nestlé SA i.e., Nestlé SA and Kraft Heinz go up and down completely randomly.

Pair Corralation between Nestlé SA and Kraft Heinz

Assuming the 90 days trading horizon Nestl SA is expected to under-perform the Kraft Heinz. But the stock apears to be less risky and, when comparing its historical volatility, Nestl SA is 1.32 times less risky than Kraft Heinz. The stock trades about -0.23 of its potential returns per unit of risk. The Kraft Heinz Co is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  3,144  in Kraft Heinz Co on September 2, 2024 and sell it today you would lose (148.00) from holding Kraft Heinz Co or give up 4.71% of portfolio value over 90 days.

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

Nestl SA  vs.  Kraft Heinz Co

Nestlé SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nestl SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Kraft Heinz

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kraft Heinz Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Kraft Heinz is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Nestlé SA and Kraft Heinz

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

The idea behind Nestl SA and Kraft Heinz Co 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.