Correlation Between Nestle SA and Meta Platforms

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

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

Diversification Opportunities for Nestle SA and Meta Platforms

-0.25

Correlation Coefficient

Nestle SA  Meta Platforms

Very good diversification

The 3 months correlation between Nestle and Meta is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Nestle SA and Meta Platforms in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meta Platforms 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 Meta Platforms. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meta Platforms has no effect on the direction of Nestle SA i.e., Nestle SA and Meta Platforms go up and down completely randomly.

Pair Corralation between Nestle SA and Meta Platforms

Assuming the 90 days horizon Nestle SA is expected to under-perform the Meta Platforms. But the pink sheet apears to be less risky and, when comparing its historical volatility, Nestle SA is 1.76 times less risky than Meta Platforms. The pink sheet trades about -0.02 of its potential returns per unit of risk. The Meta Platforms is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  47,125  in Meta Platforms on February 20, 2024 and sell it today you would earn a total of  66.00  from holding Meta Platforms or generate 0.14% return on investment over 90 days.

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

Nestle SA  vs.  Meta Platforms

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 nearly stable technical and fundamental indicators, Nestle SA is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Meta Platforms

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Meta Platforms has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Meta Platforms is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Nestle SA and Meta Platforms

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

The idea behind Nestle SA and Meta Platforms 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..