Correlation Between Bunge and Hormel Foods
Can any of the company-specific risk be diversified away by investing in both Bunge 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 Bunge and Hormel Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bunge Limited and Hormel Foods, you can compare the effects of market volatilities on Bunge 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 Bunge with a short position of Hormel Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bunge and Hormel Foods.
Diversification Opportunities for Bunge and Hormel Foods
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Bunge and Hormel is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Bunge Limited and Hormel Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hormel Foods and Bunge 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 Bunge Limited 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 Bunge i.e., Bunge and Hormel Foods go up and down completely randomly.
Pair Corralation between Bunge and Hormel Foods
Allowing for the 90-day total investment horizon Bunge is expected to generate 1.88 times less return on investment than Hormel Foods. In addition to that, Bunge is 1.13 times more volatile than Hormel Foods. It trades about 0.07 of its total potential returns per unit of risk. Hormel Foods is currently generating about 0.14 per unit of volatility. If you would invest 3,069 in Hormel Foods on August 30, 2024 and sell it today you would earn a total of 123.00 from holding Hormel Foods or generate 4.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bunge Limited vs. Hormel Foods
Performance |
| Timeline |
| Bunge Limited |
| Hormel Foods |
Bunge and Hormel Foods Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bunge and Hormel Foods
The main advantage of trading using opposite Bunge and Hormel Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bunge 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 Bunge Limited 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.| Hormel Foods vs. Campbell Soup | Hormel Foods vs. General Mills | Hormel Foods vs. Kellanova | Hormel Foods vs. Lamb Weston Holdings |
Check out your portfolio center.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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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