Correlation Between Nestle SA and Nike

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

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

Diversification Opportunities for Nestle SA and Nike

0.66

Correlation Coefficient

Nestle SA  Nike

Poor diversification

The 3 months correlation between Nestle and Nike is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Nestle SA and Nike Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nike Inc 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 Nike. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nike Inc has no effect on the direction of Nestle SA i.e., Nestle SA and Nike go up and down completely randomly.

Pair Corralation between Nestle SA and Nike

Assuming the 90 days horizon Nestle SA is expected to generate 0.63 times more return on investment than Nike. However, Nestle SA is 1.58 times less risky than Nike. It trades about -0.06 of its potential returns per unit of risk. Nike Inc is currently generating about -0.06 per unit of risk. If you would invest  12,369  in Nestle SA on January 26, 2024 and sell it today you would lose (2,107) from holding Nestle SA or give up 17.03% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.6%
Values	Daily Returns

Nestle SA  vs.  Nike Inc

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 latest conflicting performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Nike Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nike Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's forward-looking signals remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Nestle SA and Nike

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

The idea behind Nestle SA and Nike Inc 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..