Correlation Between Preferred Commerce and General Mills

Can any of the company-specific risk be diversified away by investing in both Preferred Commerce and General Mills 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 Preferred Commerce and General Mills into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Preferred Commerce and General Mills, you can compare the effects of market volatilities on Preferred Commerce and General Mills 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 Preferred Commerce with a short position of General Mills. Check out your portfolio center. Please also check ongoing floating volatility patterns of Preferred Commerce and General Mills.

Diversification Opportunities for Preferred Commerce and General Mills

-0.57

Correlation Coefficient

Preferred Commerce  General Mills

Excellent diversification

The 3 months correlation between Preferred and General is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Preferred Commerce and General Mills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Mills and Preferred Commerce 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 Preferred Commerce are associated (or correlated) with General Mills. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Mills has no effect on the direction of Preferred Commerce i.e., Preferred Commerce and General Mills go up and down completely randomly.

Pair Corralation between Preferred Commerce and General Mills

Given the investment horizon of 90 days Preferred Commerce is expected to generate 13.85 times more return on investment than General Mills. However, Preferred Commerce is 13.85 times more volatile than General Mills. It trades about 0.11 of its potential returns per unit of risk. General Mills is currently generating about -0.03 per unit of risk. If you would invest  8.50  in Preferred Commerce on September 27, 2024 and sell it today you would earn a total of  339.50  from holding Preferred Commerce or generate 3994.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Preferred Commerce  vs.  General Mills

Preferred Commerce

Risk-Adjusted Performance

32 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Preferred Commerce are ranked lower than 32 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting essential indicators, Preferred Commerce showed solid returns over the last few months and may actually be approaching a breakup point.

General Mills

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days General Mills has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's forward indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Preferred Commerce and General Mills

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

The idea behind Preferred Commerce and General Mills 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.