Correlation Between Nestl SA and Hoteles City

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

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

Diversification Opportunities for Nestl SA and Hoteles City

0.68

Correlation Coefficient

Nestl SA  Hoteles City

Poor diversification

The 3 months correlation between Nestl and Hoteles is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Nestl SA and Hoteles City Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hoteles City Express and Nestl 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 Nestl SA are associated (or correlated) with Hoteles City. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hoteles City Express has no effect on the direction of Nestl SA i.e., Nestl SA and Hoteles City go up and down completely randomly.

Pair Corralation between Nestl SA and Hoteles City

Assuming the 90 days trading horizon Nestl SA is expected to under-perform the Hoteles City. In addition to that, Nestl SA is 1.27 times more volatile than Hoteles City Express. It trades about -0.18 of its total potential returns per unit of risk. Hoteles City Express is currently generating about -0.18 per unit of volatility. If you would invest  495.00  in Hoteles City Express on January 31, 2024 and sell it today you would lose (41.00) from holding Hoteles City Express or give up 8.28% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.44%
Values	Daily Returns

Nestl SA  vs.  Hoteles City Express

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. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in May 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Hoteles City Express

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hoteles City Express has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in May 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Nestl SA and Hoteles City

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

The idea behind Nestl SA and Hoteles City Express 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.