Correlation Between Nestle SA and JM Smucker

Can any of the company-specific risk be diversified away by investing in both Nestle SA and JM Smucker 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 JM Smucker 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 JM Smucker, you can compare the effects of market volatilities on Nestle SA and JM Smucker 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 JM Smucker. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nestle SA and JM Smucker.

Diversification Opportunities for Nestle SA and JM Smucker

0.48

Correlation Coefficient

Nestle SA  JM Smucker

Very weak diversification

The 3 months correlation between Nestle and SJM is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Nestle SA ADR and JM Smucker in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JM Smucker 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 JM Smucker. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JM Smucker has no effect on the direction of Nestle SA i.e., Nestle SA and JM Smucker go up and down completely randomly.

Pair Corralation between Nestle SA and JM Smucker

Assuming the 90 days horizon Nestle SA ADR is expected to generate 0.87 times more return on investment than JM Smucker. However, Nestle SA ADR is 1.15 times less risky than JM Smucker. It trades about -0.04 of its potential returns per unit of risk. JM Smucker is currently generating about -0.04 per unit of risk. If you would invest  10,882  in Nestle SA ADR on September 20, 2024 and sell it today you would lose (2,507) from holding Nestle SA ADR or give up 23.04% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Nestle SA ADR  vs.  JM Smucker

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.

JM Smucker

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JM Smucker has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward-looking indicators, JM Smucker is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Nestle SA and JM Smucker

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

The idea behind Nestle SA ADR and JM Smucker 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.