Correlation Between Verizon Communications and Hormel Foods
Can any of the company-specific risk be diversified away by investing in both Verizon Communications 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 Verizon Communications and Hormel Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications and Hormel Foods, you can compare the effects of market volatilities on Verizon Communications 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 Verizon Communications with a short position of Hormel Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Verizon Communications and Hormel Foods.
Diversification Opportunities for Verizon Communications and Hormel Foods
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Verizon and Hormel is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Hormel Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hormel Foods and Verizon Communications 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 Verizon Communications 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 Verizon Communications i.e., Verizon Communications and Hormel Foods go up and down completely randomly.
Pair Corralation between Verizon Communications and Hormel Foods
Assuming the 90 days trading horizon Verizon Communications is expected to under-perform the Hormel Foods. But the stock apears to be less risky and, when comparing its historical volatility, Verizon Communications is 1.05 times less risky than Hormel Foods. The stock trades about -0.2 of its potential returns per unit of risk. The Hormel Foods is currently generating about -0.17 of returns per unit of risk over similar time horizon. If you would invest 19,575 in Hormel Foods on November 4, 2024 and sell it today you would lose (999.00) from holding Hormel Foods or give up 5.1% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Verizon Communications vs. Hormel Foods
Performance |
| Timeline |
| Verizon Communications |
| Hormel Foods |
Verizon Communications and Hormel Foods Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Verizon Communications and Hormel Foods
The main advantage of trading using opposite Verizon Communications and Hormel Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Verizon Communications 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 Verizon Communications 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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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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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