Correlation Between Costco Wholesale and Hormel Foods

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

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

Diversification Opportunities for Costco Wholesale and Hormel Foods

0.05

Correlation Coefficient

Costco Wholesale  Hormel Foods

Significant diversification

The 3 months correlation between Costco and Hormel is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale and Hormel Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hormel Foods and Costco Wholesale 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 Costco Wholesale 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 Costco Wholesale i.e., Costco Wholesale and Hormel Foods go up and down completely randomly.

Pair Corralation between Costco Wholesale and Hormel Foods

Assuming the 90 days trading horizon Costco Wholesale is expected to generate 1.1 times more return on investment than Hormel Foods. However, Costco Wholesale is 1.1 times more volatile than Hormel Foods. It trades about -0.08 of its potential returns per unit of risk. Hormel Foods is currently generating about -0.12 per unit of risk. If you would invest  14,878  in Costco Wholesale on December 25, 2024 and sell it today you would lose (1,636) from holding Costco Wholesale or give up 11.0% of portfolio value over 90 days.

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

Costco Wholesale  vs.  Hormel Foods

Costco Wholesale

Risk-Adjusted Performance

Very Weak

Over the last 90 days Costco Wholesale has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Hormel Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hormel Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Costco Wholesale and Hormel Foods

The main advantage of trading using opposite Costco Wholesale and Hormel Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Costco Wholesale 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 Costco Wholesale 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.