Correlation Between McCormick Company and Coffee Holding

Can any of the company-specific risk be diversified away by investing in both McCormick Company and Coffee Holding 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 Coffee Holding 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 Coffee Holding Co, you can compare the effects of market volatilities on McCormick Company and Coffee Holding 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 Coffee Holding. Check out your portfolio center. Please also check ongoing floating volatility patterns of McCormick Company and Coffee Holding.

Diversification Opportunities for McCormick Company and Coffee Holding

0.62

Correlation Coefficient

McCormick Company  Coffee Holding

Poor diversification

The 3 months correlation between McCormick and Coffee is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding McCormick Company Incorporated and Coffee Holding Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coffee Holding 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 Coffee Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coffee Holding has no effect on the direction of McCormick Company i.e., McCormick Company and Coffee Holding go up and down completely randomly.

Pair Corralation between McCormick Company and Coffee Holding

Assuming the 90 days horizon McCormick Company is expected to generate 1.3 times less return on investment than Coffee Holding. But when comparing it to its historical volatility, McCormick Company Incorporated is 5.01 times less risky than Coffee Holding. It trades about 0.08 of its potential returns per unit of risk. Coffee Holding Co is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  356.00  in Coffee Holding Co on December 30, 2024 and sell it today you would lose (32.00) from holding Coffee Holding Co or give up 8.99% of portfolio value over 90 days.

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

McCormick Company Incorporated  vs.  Coffee Holding Co

McCormick Company

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in McCormick Company Incorporated are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, McCormick Company may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Coffee Holding

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Coffee Holding Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Coffee Holding may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with McCormick Company and Coffee Holding

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

The idea behind McCormick Company Incorporated and Coffee Holding Co 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.