Correlation Between Hormel Foods and McCormick Company
Can any of the company-specific risk be diversified away by investing in both Hormel Foods and McCormick Company 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 Hormel Foods and McCormick Company into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hormel Foods and McCormick Company Incorporated, you can compare the effects of market volatilities on Hormel Foods and McCormick Company 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 Hormel Foods with a short position of McCormick Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hormel Foods and McCormick Company.
Diversification Opportunities for Hormel Foods and McCormick Company
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Hormel and McCormick is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Hormel Foods and McCormick Company Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McCormick rporated and Hormel Foods 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 Hormel Foods are associated (or correlated) with McCormick Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McCormick rporated has no effect on the direction of Hormel Foods i.e., Hormel Foods and McCormick Company go up and down completely randomly.
Pair Corralation between Hormel Foods and McCormick Company
Considering the 90-day investment horizon Hormel Foods is expected to generate 1.69 times less return on investment than McCormick Company. But when comparing it to its historical volatility, Hormel Foods is 2.46 times less risky than McCormick Company. It trades about 0.21 of its potential returns per unit of risk. McCormick Company Incorporated is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 6,956 in McCormick Company Incorporated on January 25, 2024 and sell it today you would earn a total of 546.00 from holding McCormick Company Incorporated or generate 7.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Hormel Foods vs. McCormick Company Incorporated
Performance |
| Timeline |
| Hormel Foods |
| McCormick rporated |
Hormel Foods and McCormick Company Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hormel Foods and McCormick Company
The main advantage of trading using opposite Hormel Foods and McCormick Company positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hormel Foods position performs unexpectedly, McCormick Company 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 McCormick Company will offset losses from the drop in McCormick Company's long position.The idea behind Hormel Foods and McCormick Company Incorporated 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.| McCormick Company vs. ConAgra Foods | McCormick Company vs. Campbell Soup | McCormick Company vs. Kellanova | McCormick Company vs. General Mills |
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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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