Correlation Between Preferred Commerce and Hormel Foods

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

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

Diversification Opportunities for Preferred Commerce and Hormel Foods

0.44

Correlation Coefficient

Preferred Commerce  Hormel Foods

Very weak diversification

The 3 months correlation between Preferred and Hormel is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Preferred Commerce and Hormel Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hormel Foods 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 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 Preferred Commerce i.e., Preferred Commerce and Hormel Foods go up and down completely randomly.

Pair Corralation between Preferred Commerce and Hormel Foods

Given the investment horizon of 90 days Preferred Commerce is expected to generate 10.59 times more return on investment than Hormel Foods. However, Preferred Commerce is 10.59 times more volatile than Hormel Foods. It trades about 0.11 of its potential returns per unit of risk. Hormel Foods is currently generating about -0.04 per unit of risk. If you would invest  8.50  in Preferred Commerce on October 15, 2024 and sell it today you would earn a total of  365.50  from holding Preferred Commerce or generate 4300.0% return on investment over 90 days.

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

Preferred Commerce  vs.  Hormel Foods

Preferred Commerce

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Preferred Commerce are ranked lower than 30 (%) 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.

Hormel Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hormel Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Hormel Foods is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Preferred Commerce and Hormel Foods

The main advantage of trading using opposite Preferred Commerce and Hormel Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Preferred Commerce 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 Preferred Commerce 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.