Correlation Between Danone SA and McCormick Company

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

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

Diversification Opportunities for Danone SA and McCormick Company

0.25

Correlation Coefficient

Danone SA  McCormick Company

Modest diversification

The 3 months correlation between Danone and McCormick is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Danone SA and McCormick Company Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McCormick Company and Danone SA 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 Danone SA 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 Danone SA i.e., Danone SA and McCormick Company go up and down completely randomly.

Pair Corralation between Danone SA and McCormick Company

Assuming the 90 days horizon Danone SA is expected to generate 1.89 times less return on investment than McCormick Company. But when comparing it to its historical volatility, Danone SA is 1.23 times less risky than McCormick Company. It trades about 0.03 of its potential returns per unit of risk. McCormick Company Incorporated is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  6,929  in McCormick Company Incorporated on September 20, 2024 and sell it today you would earn a total of  917.00  from holding McCormick Company Incorporated or generate 13.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.81%
Values	Daily Returns

Danone SA  vs.  McCormick Company Incorporated

Danone SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Danone SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic 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

0 of 100

Very Weak

Over the last 90 days McCormick Company Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, McCormick Company is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Danone SA and McCormick Company

The main advantage of trading using opposite Danone SA and McCormick Company positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Danone SA 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 Danone SA 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.