Correlation Between Nestle SA and Avi

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

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

Diversification Opportunities for Nestle SA and Avi

-0.7

Correlation Coefficient

Nestle SA  Avi

Excellent diversification

The 3 months correlation between Nestle and Avi is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Nestle SA and Avi Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avi Ltd ADR and Nestle 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 Nestle SA are associated (or correlated) with Avi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avi Ltd ADR has no effect on the direction of Nestle SA i.e., Nestle SA and Avi go up and down completely randomly.

Pair Corralation between Nestle SA and Avi

Assuming the 90 days horizon Nestle SA is expected to under-perform the Avi. But the pink sheet apears to be less risky and, when comparing its historical volatility, Nestle SA is 5.49 times less risky than Avi. The pink sheet trades about -0.32 of its potential returns per unit of risk. The Avi Ltd ADR is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,222  in Avi Ltd ADR on September 3, 2024 and sell it today you would earn a total of  588.00  from holding Avi Ltd ADR or generate 26.46% return on investment over 90 days.

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

Nestle SA  vs.  Avi Ltd ADR

Nestle SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nestle SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's technical and fundamental 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.

Avi Ltd ADR

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Avi Ltd ADR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain technical and fundamental indicators, Avi showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nestle SA and Avi

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

The idea behind Nestle SA and Avi Ltd ADR 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.