Correlation Between Nestle SA and Danone SA

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

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

Diversification Opportunities for Nestle SA and Danone SA

0.81

Correlation Coefficient

Nestle SA  Danone SA

Very poor diversification

The 3 months correlation between Nestle and Danone is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Nestle SA ADR and Danone SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Danone SA 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 ADR are associated (or correlated) with Danone SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Danone SA has no effect on the direction of Nestle SA i.e., Nestle SA and Danone SA go up and down completely randomly.

Pair Corralation between Nestle SA and Danone SA

Assuming the 90 days horizon Nestle SA ADR is expected to under-perform the Danone SA. But the pink sheet apears to be less risky and, when comparing its historical volatility, Nestle SA ADR is 1.13 times less risky than Danone SA. The pink sheet trades about -0.26 of its potential returns per unit of risk. The Danone SA is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  7,125  in Danone SA on September 20, 2024 and sell it today you would lose (240.00) from holding Danone SA or give up 3.37% of portfolio value over 90 days.

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

Nestle SA ADR  vs.  Danone SA

Nestle SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nestle SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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 nearly stable basic indicators, Danone SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Nestle SA and Danone SA

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

The idea behind Nestle SA ADR and Danone SA 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..