Correlation Between Cal Maine and SalMar ASA

Can any of the company-specific risk be diversified away by investing in both Cal Maine and SalMar ASA 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 Cal Maine and SalMar ASA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cal Maine Foods and SalMar ASA, you can compare the effects of market volatilities on Cal Maine and SalMar ASA 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 Cal Maine with a short position of SalMar ASA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cal Maine and SalMar ASA.

Diversification Opportunities for Cal Maine and SalMar ASA

0.87

Correlation Coefficient

Cal Maine  SalMar ASA

Very poor diversification

The 3 months correlation between Cal and SalMar is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Cal Maine Foods and SalMar ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SalMar ASA and Cal Maine 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 Cal Maine Foods are associated (or correlated) with SalMar ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SalMar ASA has no effect on the direction of Cal Maine i.e., Cal Maine and SalMar ASA go up and down completely randomly.

Pair Corralation between Cal Maine and SalMar ASA

Given the investment horizon of 90 days Cal Maine Foods is expected to generate 6.16 times more return on investment than SalMar ASA. However, Cal Maine is 6.16 times more volatile than SalMar ASA. It trades about 0.4 of its potential returns per unit of risk. SalMar ASA is currently generating about 0.12 per unit of risk. If you would invest  6,857  in Cal Maine Foods on September 12, 2024 and sell it today you would earn a total of  3,624  from holding Cal Maine Foods or generate 52.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Cal Maine Foods  vs.  SalMar ASA

Cal Maine Foods

Risk-Adjusted Performance

31 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Cal Maine Foods are ranked lower than 31 (%) of all global equities and portfolios over the last 90 days. In spite of very weak essential indicators, Cal Maine displayed solid returns over the last few months and may actually be approaching a breakup point.

SalMar ASA

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SalMar ASA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, SalMar ASA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Cal Maine and SalMar ASA

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

The idea behind Cal Maine Foods and SalMar ASA 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.