Correlation Between McCormick Company and Danone SA

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

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

Diversification Opportunities for McCormick Company and Danone SA

0.25

Correlation Coefficient

McCormick Company  Danone SA

Modest diversification

The 3 months correlation between McCormick and Danone is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding McCormick Company Incorporated and Danone SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Danone SA and McCormick Company 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 McCormick Company Incorporated are associated (or correlated) with Danone SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Danone SA has no effect on the direction of McCormick Company i.e., McCormick Company and Danone SA go up and down completely randomly.

Pair Corralation between McCormick Company and Danone SA

Assuming the 90 days horizon McCormick Company Incorporated is expected to generate 1.23 times more return on investment than Danone SA. However, McCormick Company is 1.23 times more volatile than Danone SA. It trades about 0.05 of its potential returns per unit of risk. Danone SA is currently generating about 0.03 per unit of risk. 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

McCormick Company Incorporated  vs.  Danone SA

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.

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.

Pair Trading with McCormick Company and Danone SA

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

The idea behind McCormick Company Incorporated and Danone SA 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .