Correlation Between McCormick Company and Central Garden

Can any of the company-specific risk be diversified away by investing in both McCormick Company and Central Garden 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 Central Garden 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 Central Garden Pet, you can compare the effects of market volatilities on McCormick Company and Central Garden 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 Central Garden. Check out your portfolio center. Please also check ongoing floating volatility patterns of McCormick Company and Central Garden.

Diversification Opportunities for McCormick Company and Central Garden

0.32

Correlation Coefficient

McCormick Company  Central Garden

Weak diversification

The 3 months correlation between McCormick and Central is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding McCormick Company Incorporated and Central Garden Pet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Garden Pet 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 Central Garden. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Garden Pet has no effect on the direction of McCormick Company i.e., McCormick Company and Central Garden go up and down completely randomly.

Pair Corralation between McCormick Company and Central Garden

Assuming the 90 days horizon McCormick Company Incorporated is expected to under-perform the Central Garden. But the stock apears to be less risky and, when comparing its historical volatility, McCormick Company Incorporated is 1.13 times less risky than Central Garden. The stock trades about -0.14 of its potential returns per unit of risk. The Central Garden Pet is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  3,236  in Central Garden Pet on January 18, 2025 and sell it today you would lose (157.00) from holding Central Garden Pet or give up 4.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

McCormick Company Incorporated  vs.  Central Garden Pet

McCormick Company

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in McCormick Company Incorporated are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, McCormick Company is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Central Garden Pet

Risk-Adjusted Performance

Very Weak

Over the last 90 days Central Garden Pet has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Central Garden is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with McCormick Company and Central Garden

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

The idea behind McCormick Company Incorporated and Central Garden Pet 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.