Correlation Between Central Garden and Hormel Foods

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

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

Diversification Opportunities for Central Garden and Hormel Foods

0.59

Correlation Coefficient

Central Garden  Hormel Foods

Very weak diversification

The 3 months correlation between Central and Hormel is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Central Garden Pet and Hormel Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hormel Foods and Central Garden 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 Central Garden Pet 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 Central Garden i.e., Central Garden and Hormel Foods go up and down completely randomly.

Pair Corralation between Central Garden and Hormel Foods

Assuming the 90 days horizon Central Garden is expected to generate 3.07 times less return on investment than Hormel Foods. In addition to that, Central Garden is 1.4 times more volatile than Hormel Foods. It trades about 0.01 of its total potential returns per unit of risk. Hormel Foods is currently generating about 0.04 per unit of volatility. If you would invest  3,000  in Hormel Foods on September 30, 2024 and sell it today you would earn a total of  185.00  from holding Hormel Foods or generate 6.17% return on investment over 90 days.

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

Central Garden Pet  vs.  Hormel Foods

Central Garden Pet

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Central Garden Pet are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Central Garden may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Hormel Foods

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hormel Foods are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Hormel Foods is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Central Garden and Hormel Foods

The main advantage of trading using opposite Central Garden and Hormel Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Central Garden 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 Central Garden Pet 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.