Correlation Between Richardson Electronics and Nestl SA

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

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

Diversification Opportunities for Richardson Electronics and Nestl SA

-0.81

Correlation Coefficient

Richardson Electronics  Nestl SA

Pay attention - limited upside

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

Pair Corralation between Richardson Electronics and Nestl SA

Assuming the 90 days horizon Richardson Electronics is expected to generate 2.53 times more return on investment than Nestl SA. However, Richardson Electronics is 2.53 times more volatile than Nestl SA. It trades about 0.19 of its potential returns per unit of risk. Nestl SA is currently generating about -0.2 per unit of risk. If you would invest  1,026  in Richardson Electronics on September 5, 2024 and sell it today you would earn a total of  342.00  from holding Richardson Electronics or generate 33.33% return on investment over 90 days.

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

Richardson Electronics  vs.  Nestl SA

Richardson Electronics

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Richardson Electronics are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Richardson Electronics reported solid returns over the last few months and may actually be approaching a breakup point.

Nestl 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.

Pair Trading with Richardson Electronics and Nestl SA

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

The idea behind Richardson Electronics and Nestl 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 Global Correlations module to find global opportunities by holding instruments from different markets.