Correlation Between McCormick Company and NightFood Holdings

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

Diversification Opportunities for McCormick Company and NightFood Holdings

0.07

Correlation Coefficient

McCormick Company  NightFood Holdings

Significant diversification

The 3 months correlation between McCormick and NightFood is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding McCormick Company Incorporated and NightFood Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NightFood Holdings 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 NightFood Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NightFood Holdings has no effect on the direction of McCormick Company i.e., McCormick Company and NightFood Holdings go up and down completely randomly.

Pair Corralation between McCormick Company and NightFood Holdings

Assuming the 90 days horizon McCormick Company is expected to generate 8.49 times less return on investment than NightFood Holdings. But when comparing it to its historical volatility, McCormick Company Incorporated is 7.86 times less risky than NightFood Holdings. It trades about 0.08 of its potential returns per unit of risk. NightFood Holdings is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  0.65  in NightFood Holdings on December 30, 2024 and sell it today you would earn a total of  0.19  from holding NightFood Holdings or generate 29.23% return on investment over 90 days.

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

McCormick Company Incorporated  vs.  NightFood Holdings

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.

NightFood Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NightFood Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, NightFood Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with McCormick Company and NightFood Holdings

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

The idea behind McCormick Company Incorporated and NightFood Holdings 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.