Correlation Between Nestle India and Edelweiss Financial

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

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

Diversification Opportunities for Nestle India and Edelweiss Financial

0.66

Correlation Coefficient

Nestle India  Edelweiss Financial

Poor diversification

The 3 months correlation between Nestle and Edelweiss is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Nestle India Limited and Edelweiss Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Edelweiss Financial and Nestle India 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 Nestle India Limited are associated (or correlated) with Edelweiss Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Edelweiss Financial has no effect on the direction of Nestle India i.e., Nestle India and Edelweiss Financial go up and down completely randomly.

Pair Corralation between Nestle India and Edelweiss Financial

Assuming the 90 days trading horizon Nestle India Limited is expected to under-perform the Edelweiss Financial. But the stock apears to be less risky and, when comparing its historical volatility, Nestle India Limited is 2.92 times less risky than Edelweiss Financial. The stock trades about -0.16 of its potential returns per unit of risk. The Edelweiss Financial Services is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  12,370  in Edelweiss Financial Services on September 13, 2024 and sell it today you would earn a total of  230.00  from holding Edelweiss Financial Services or generate 1.86% return on investment over 90 days.

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

Nestle India Limited  vs.  Edelweiss Financial Services

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.

Edelweiss Financial

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Edelweiss Financial Services are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong forward indicators, Edelweiss Financial is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Nestle India and Edelweiss Financial

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

The idea behind Nestle India Limited and Edelweiss Financial Services 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.