Correlation Between Volkswagen and Hormel Foods

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

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

Diversification Opportunities for Volkswagen and Hormel Foods

-0.45

Correlation Coefficient

Volkswagen  Hormel Foods

Very good diversification

The 3 months correlation between Volkswagen and Hormel is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and Hormel Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hormel Foods and Volkswagen 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 Volkswagen AG are associated (or correlated) with Hormel Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hormel Foods has no effect on the direction of Volkswagen i.e., Volkswagen and Hormel Foods go up and down completely randomly.

Pair Corralation between Volkswagen and Hormel Foods

Assuming the 90 days trading horizon Volkswagen AG is expected to under-perform the Hormel Foods. In addition to that, Volkswagen is 1.07 times more volatile than Hormel Foods. It trades about -0.05 of its total potential returns per unit of risk. Hormel Foods is currently generating about 0.03 per unit of volatility. If you would invest  2,835  in Hormel Foods on October 5, 2024 and sell it today you would earn a total of  217.00  from holding Hormel Foods or generate 7.65% return on investment over 90 days.

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

Volkswagen AG  vs.  Hormel Foods

Volkswagen AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Hormel Foods

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Hormel Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly uncertain basic indicators, Hormel Foods may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Volkswagen and Hormel Foods

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

The idea behind Volkswagen AG and Hormel Foods 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.