Correlation Between Associated British and McCormick Company

Can any of the company-specific risk be diversified away by investing in both Associated British 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 Associated British and McCormick Company into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Associated British Foods and McCormick Company Incorporated, you can compare the effects of market volatilities on Associated British 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 Associated British with a short position of McCormick Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Associated British and McCormick Company.

Diversification Opportunities for Associated British and McCormick Company

0.2

Correlation Coefficient

Associated British  McCormick Company

Modest diversification

The 3 months correlation between Associated and McCormick is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Associated British Foods and McCormick Company Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McCormick Company and Associated British 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 Associated British 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 Company has no effect on the direction of Associated British i.e., Associated British and McCormick Company go up and down completely randomly.

Pair Corralation between Associated British and McCormick Company

Assuming the 90 days horizon Associated British Foods is expected to under-perform the McCormick Company. But the pink sheet apears to be less risky and, when comparing its historical volatility, Associated British Foods is 1.1 times less risky than McCormick Company. The pink sheet trades about -0.08 of its potential returns per unit of risk. The McCormick Company Incorporated is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  7,704  in McCormick Company Incorporated on November 28, 2024 and sell it today you would earn a total of  540.00  from holding McCormick Company Incorporated or generate 7.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	56.9%
Values	Daily Returns

Associated British Foods  vs.  McCormick Company Incorporated

Associated British Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Associated British Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak 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.

McCormick Company

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in McCormick Company Incorporated are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, McCormick Company may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Associated British and McCormick Company

The main advantage of trading using opposite Associated British and McCormick Company positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Associated British 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 Associated British 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.

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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.