Correlation Between McCormick Company and Nestle SA
Can any of the company-specific risk be diversified away by investing in both McCormick Company and Nestle SA 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 Nestle SA 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 Nestle SA ADR, you can compare the effects of market volatilities on McCormick Company and Nestle SA 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 Nestle SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of McCormick Company and Nestle SA.
Diversification Opportunities for McCormick Company and Nestle SA
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between McCormick and Nestle is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding McCormick Company Incorporated and Nestle SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestle SA ADR 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 Nestle SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestle SA ADR has no effect on the direction of McCormick Company i.e., McCormick Company and Nestle SA go up and down completely randomly.
Pair Corralation between McCormick Company and Nestle SA
Assuming the 90 days horizon McCormick Company Incorporated is expected to generate 1.68 times more return on investment than Nestle SA. However, McCormick Company is 1.68 times more volatile than Nestle SA ADR. It trades about 0.0 of its potential returns per unit of risk. Nestle SA ADR is currently generating about -0.04 per unit of risk. If you would invest 8,280 in McCormick Company Incorporated on August 28, 2024 and sell it today you would lose (550.00) from holding McCormick Company Incorporated or give up 6.64% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
McCormick Company Incorporated vs. Nestle SA ADR
Performance |
| Timeline |
| McCormick Company |
| Nestle SA ADR |
McCormick Company and Nestle SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with McCormick Company and Nestle SA
The main advantage of trading using opposite McCormick Company and Nestle SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McCormick Company position performs unexpectedly, Nestle SA 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 Nestle SA will offset losses from the drop in Nestle SA's long position.| McCormick Company vs. Central Garden Pet | McCormick Company vs. Natures Sunshine Products | McCormick Company vs. Seneca Foods Corp | McCormick Company vs. Central Garden Pet |
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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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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