Correlation Between Hormel Foods and McCormick Company

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

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

Diversification Opportunities for Hormel Foods and McCormick Company

0.7

Correlation Coefficient

Hormel Foods  McCormick Company

Poor diversification

The 3 months correlation between Hormel and McCormick is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Hormel Foods and McCormick Company Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McCormick Company and Hormel Foods 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 Hormel Foods 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 Hormel Foods i.e., Hormel Foods and McCormick Company go up and down completely randomly.

Pair Corralation between Hormel Foods and McCormick Company

Considering the 90-day investment horizon Hormel Foods is expected to generate 1.38 times more return on investment than McCormick Company. However, Hormel Foods is 1.38 times more volatile than McCormick Company Incorporated. It trades about 0.0 of its potential returns per unit of risk. McCormick Company Incorporated is currently generating about -0.03 per unit of risk. If you would invest  3,225  in Hormel Foods on August 30, 2024 and sell it today you would lose (33.00) from holding Hormel Foods or give up 1.02% of portfolio value over 90 days.

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

Hormel Foods  vs.  McCormick Company Incorporated

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.

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 rather sound forward-looking signals, McCormick Company is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Hormel Foods and McCormick Company

The main advantage of trading using opposite Hormel Foods and McCormick Company positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hormel Foods 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 Hormel Foods 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.