Correlation Between SK TELECOM and Nestlé SA

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

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

Diversification Opportunities for SK TELECOM and Nestlé SA

-0.51

Correlation Coefficient

SK TELECOM  Nestlé SA

Excellent diversification

The 3 months correlation between KMBA and Nestlé is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding SK TELECOM TDADR and Nestl SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestlé SA and SK TELECOM 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 SK TELECOM TDADR are associated (or correlated) with Nestlé SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestlé SA has no effect on the direction of SK TELECOM i.e., SK TELECOM and Nestlé SA go up and down completely randomly.

Pair Corralation between SK TELECOM and Nestlé SA

Assuming the 90 days trading horizon SK TELECOM TDADR is expected to generate 2.25 times more return on investment than Nestlé SA. However, SK TELECOM is 2.25 times more volatile than Nestl SA. It trades about -0.01 of its potential returns per unit of risk. Nestl SA is currently generating about -0.13 per unit of risk. If you would invest  1,930  in SK TELECOM TDADR on April 22, 2025 and sell it today you would lose (60.00) from holding SK TELECOM TDADR or give up 3.11% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	93.75%
Values	Daily Returns

SK TELECOM TDADR  vs.  Nestl SA

SK TELECOM TDADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days SK TELECOM TDADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental drivers, SK TELECOM is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Nestlé SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nestl SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with SK TELECOM and Nestlé SA

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

The idea behind SK TELECOM TDADR 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.