Correlation Between Tyson Foods and WEC Energy

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

By analyzing existing cross correlation between Tyson Foods and WEC Energy Group, you can compare the effects of market volatilities on Tyson Foods and WEC Energy 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 Tyson Foods with a short position of WEC Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tyson Foods and WEC Energy.

Diversification Opportunities for Tyson Foods and WEC Energy

0.7

Correlation Coefficient

Tyson Foods  WEC Energy

Poor diversification

The 3 months correlation between Tyson and WEC is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Tyson Foods and WEC Energy Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WEC Energy Group and Tyson Foods 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 Tyson Foods are associated (or correlated) with WEC Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WEC Energy Group has no effect on the direction of Tyson Foods i.e., Tyson Foods and WEC Energy go up and down completely randomly.

Pair Corralation between Tyson Foods and WEC Energy

Considering the 90-day investment horizon Tyson Foods is expected to under-perform the WEC Energy. But the stock apears to be less risky and, when comparing its historical volatility, Tyson Foods is 1.23 times less risky than WEC Energy. The stock trades about -0.49 of its potential returns per unit of risk. The WEC Energy Group is currently generating about -0.25 of returns per unit of risk over similar time horizon. If you would invest  9,927  in WEC Energy Group on September 21, 2024 and sell it today you would lose (477.00) from holding WEC Energy Group or give up 4.81% of portfolio value over 90 days.

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

Tyson Foods  vs.  WEC Energy Group

Tyson Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tyson Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Tyson Foods is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

WEC Energy Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WEC Energy Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, WEC Energy is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Tyson Foods and WEC Energy

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

The idea behind Tyson Foods and WEC Energy Group 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.