Correlation Between Coca Cola and Hormel Foods

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

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

Diversification Opportunities for Coca Cola and Hormel Foods

-0.05

Correlation Coefficient

Coca Cola  Hormel Foods

Good diversification

The 3 months correlation between Coca and Hormel is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Coca Cola Femsa SAB and Hormel Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hormel Foods and Coca Cola 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 Coca Cola Femsa SAB 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 Coca Cola i.e., Coca Cola and Hormel Foods go up and down completely randomly.

Pair Corralation between Coca Cola and Hormel Foods

Considering the 90-day investment horizon Coca Cola Femsa SAB is expected to under-perform the Hormel Foods. In addition to that, Coca Cola is 1.55 times more volatile than Hormel Foods. It trades about -0.12 of its total potential returns per unit of risk. Hormel Foods is currently generating about -0.01 per unit of volatility. If you would invest  3,420  in Hormel Foods on January 19, 2024 and sell it today you would lose (10.00) from holding Hormel Foods or give up 0.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

Coca Cola Femsa SAB  vs.  Hormel Foods

Coca Cola Femsa

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Coca Cola Femsa SAB are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Coca Cola is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Hormel Foods

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hormel Foods are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, Hormel Foods disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Coca Cola and Hormel Foods

The main advantage of trading using opposite Coca Cola and Hormel Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coca Cola 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 Coca Cola Femsa SAB 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .