Correlation Between McCormick Company and Hormel Foods
Can any of the company-specific risk be diversified away by investing in both McCormick Company and Hormel Foods 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 McCormick Company and Hormel Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McCormick Company Incorporated and Hormel Foods, you can compare the effects of market volatilities on McCormick Company and Hormel Foods 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 McCormick Company with a short position of Hormel Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of McCormick Company and Hormel Foods.
Diversification Opportunities for McCormick Company and Hormel Foods
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between McCormick and Hormel is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding McCormick Company Incorporated and Hormel Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hormel Foods and McCormick Company 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 McCormick Company Incorporated are associated (or correlated) with Hormel Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hormel Foods has no effect on the direction of McCormick Company i.e., McCormick Company and Hormel Foods go up and down completely randomly.
Pair Corralation between McCormick Company and Hormel Foods
Considering the 90-day investment horizon McCormick Company is expected to generate 1.46 times less return on investment than Hormel Foods. But when comparing it to its historical volatility, McCormick Company Incorporated is 1.23 times less risky than Hormel Foods. It trades about 0.1 of its potential returns per unit of risk. Hormel Foods is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 3,032 in Hormel Foods on January 27, 2024 and sell it today you would earn a total of 495.00 from holding Hormel Foods or generate 16.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 98.44% |
| Values | Daily Returns |
McCormick Company Incorporated vs. Hormel Foods
Performance |
| Timeline |
| McCormick rporated |
| Hormel Foods |
McCormick Company and Hormel Foods Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with McCormick Company and Hormel Foods
The main advantage of trading using opposite McCormick Company and Hormel Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McCormick Company position performs unexpectedly, Hormel Foods 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 Hormel Foods will offset losses from the drop in Hormel Foods' long position.| 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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