Correlation Between Salesforce and Hanover Foods

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

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

Diversification Opportunities for Salesforce and Hanover Foods

0.82

Correlation Coefficient

Salesforce Hanover Foods

Very poor diversification

The 3 months correlation between Salesforce and Hanover is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Salesforce and Hanover Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hanover Foods and Salesforce 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 Salesforce are associated (or correlated) with Hanover Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hanover Foods has no effect on the direction of Salesforce i.e., Salesforce and Hanover Foods go up and down completely randomly.

Pair Corralation between Salesforce and Hanover Foods

Considering the 90-day investment horizon Salesforce is expected to generate 6.42 times more return on investment than Hanover Foods. However, Salesforce is 6.42 times more volatile than Hanover Foods. It trades about 0.03 of its potential returns per unit of risk. Hanover Foods is currently generating about -0.01 per unit of risk. If you would invest  18,701  in Salesforce on March 12, 2023 and sell it today you would earn a total of  2,830  from holding Salesforce or generate 15.13% return on investment over 90 days.

Salesforce  vs.  Hanover Foods

Salesforce

Salesforce Performance

16 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in Salesforce are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Salesforce displayed solid returns over the last few months and may actually be approaching a breakup point.

Hanover Foods

Hanover Performance

9 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in Hanover Foods are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Hanover Foods is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Salesforce and Hanover Foods

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

The idea behind Salesforce and Hanover 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.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.