Correlation Between Hershey and Tootsie Roll

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

By analyzing existing cross correlation between Hershey Co and Tootsie Roll Industries, you can compare the effects of market volatilities on Hershey and Tootsie Roll 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 Hershey with a short position of Tootsie Roll. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hershey and Tootsie Roll.

Diversification Opportunities for Hershey and Tootsie Roll

0.72

Correlation Coefficient

Hershey  Tootsie Roll

Poor diversification

The 3 months correlation between Hershey and Tootsie is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Hershey Co and Tootsie Roll Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tootsie Roll Industries and Hershey 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 Hershey Co are associated (or correlated) with Tootsie Roll. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tootsie Roll Industries has no effect on the direction of Hershey i.e., Hershey and Tootsie Roll go up and down completely randomly.

Pair Corralation between Hershey and Tootsie Roll

Considering the 90-day investment horizon Hershey Co is expected to generate 1.28 times more return on investment than Tootsie Roll. However, Hershey is 1.28 times more volatile than Tootsie Roll Industries. It trades about 0.11 of its potential returns per unit of risk. Tootsie Roll Industries is currently generating about -0.05 per unit of risk. If you would invest  15,226  in Hershey Co on November 19, 2024 and sell it today you would earn a total of  562.00  from holding Hershey Co or generate 3.69% return on investment over 90 days.

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

Hershey Co  vs.  Tootsie Roll Industries

Hershey

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hershey Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Hershey is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Tootsie Roll Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tootsie Roll Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Tootsie Roll is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Hershey and Tootsie Roll

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

The idea behind Hershey Co and Tootsie Roll Industries 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.