Correlation Between Nestle SA and Hormel Foods

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Can any of the company-specific risk be diversified away by investing in both Nestle SA 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 Nestle SA and Hormel Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nestle SA and Hormel Foods, you can compare the effects of market volatilities on Nestle SA 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 Nestle SA with a short position of Hormel Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nestle SA and Hormel Foods.

Diversification Opportunities for Nestle SA and Hormel Foods

-0.53
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Nestle and Hormel is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Nestle SA and Hormel Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hormel Foods 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 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 Nestle SA i.e., Nestle SA and Hormel Foods go up and down completely randomly.

Pair Corralation between Nestle SA and Hormel Foods

Assuming the 90 days horizon Nestle SA is expected to generate 13.55 times less return on investment than Hormel Foods. But when comparing it to its historical volatility, Nestle SA is 4.13 times less risky than Hormel Foods. It trades about 0.05 of its potential returns per unit of risk. Hormel Foods is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  3,083  in Hormel Foods on December 30, 2023 and sell it today you would earn a total of  406.00  from holding Hormel Foods or generate 13.17% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Nestle SA  vs.  Hormel Foods

 Performance 
       Timeline  
Nestle SA 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
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 unsteady 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.
Hormel Foods 

Risk-Adjusted Performance

4 of 100

 
Low
 
High
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Hormel Foods are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, Hormel Foods may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Nestle SA and Hormel Foods Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Nestle SA and Hormel Foods

The main advantage of trading using opposite Nestle SA and Hormel Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nestle SA 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.
The idea behind Nestle SA and Hormel Foods 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.

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