Correlation Between Hormel Foods and Premier Foods

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

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

Diversification Opportunities for Hormel Foods and Premier Foods

-0.36

Correlation Coefficient

Hormel Foods  Premier Foods

Very good diversification

The 3 months correlation between Hormel and Premier is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Hormel Foods and Premier Foods Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premier Foods Plc 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 Premier Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premier Foods Plc has no effect on the direction of Hormel Foods i.e., Hormel Foods and Premier Foods go up and down completely randomly.

Pair Corralation between Hormel Foods and Premier Foods

Considering the 90-day investment horizon Hormel Foods is expected to generate 20.53 times less return on investment than Premier Foods. But when comparing it to its historical volatility, Hormel Foods is 1.01 times less risky than Premier Foods. It trades about 0.01 of its potential returns per unit of risk. Premier Foods Plc is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,136  in Premier Foods Plc on September 5, 2024 and sell it today you would earn a total of  90.00  from holding Premier Foods Plc or generate 7.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Hormel Foods  vs.  Premier Foods Plc

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.

Premier Foods Plc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Premier Foods Plc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting technical and fundamental indicators, Premier Foods may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Hormel Foods and Premier Foods

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

The idea behind Hormel Foods and Premier Foods Plc 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..