Correlation Between Simply Good and McCormick Company

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

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

Diversification Opportunities for Simply Good and McCormick Company

-0.35

Correlation Coefficient

Simply Good  McCormick Company

Very good diversification

The 3 months correlation between Simply and McCormick is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Simply Good Foods and McCormick Company Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McCormick Company and Simply Good 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 Simply Good Foods are associated (or correlated) with McCormick Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McCormick Company has no effect on the direction of Simply Good i.e., Simply Good and McCormick Company go up and down completely randomly.

Pair Corralation between Simply Good and McCormick Company

Given the investment horizon of 90 days Simply Good Foods is expected to generate 0.88 times more return on investment than McCormick Company. However, Simply Good Foods is 1.13 times less risky than McCormick Company. It trades about 0.01 of its potential returns per unit of risk. McCormick Company Incorporated is currently generating about 0.01 per unit of risk. If you would invest  3,795  in Simply Good Foods on September 19, 2024 and sell it today you would earn a total of  111.00  from holding Simply Good Foods or generate 2.92% return on investment over 90 days.

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

Simply Good Foods  vs.  McCormick Company Incorporated

Simply Good Foods

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Simply Good Foods are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, Simply Good disclosed solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Simply Good and McCormick Company

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

The idea behind Simply Good Foods and McCormick Company Incorporated 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..