Correlation Between Lamb Weston and Hormel Foods

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

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

Diversification Opportunities for Lamb Weston and Hormel Foods

-0.51

Correlation Coefficient

Lamb Weston  Hormel Foods

Excellent diversification

The 3 months correlation between Lamb and Hormel is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Lamb Weston Holdings and Hormel Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hormel Foods and Lamb Weston 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 Lamb Weston Holdings 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 Lamb Weston i.e., Lamb Weston and Hormel Foods go up and down completely randomly.

Pair Corralation between Lamb Weston and Hormel Foods

Allowing for the 90-day total investment horizon Lamb Weston Holdings is expected to generate 1.86 times more return on investment than Hormel Foods. However, Lamb Weston is 1.86 times more volatile than Hormel Foods. It trades about 0.13 of its potential returns per unit of risk. Hormel Foods is currently generating about 0.04 per unit of risk. If you would invest  8,117  in Lamb Weston Holdings on February 4, 2024 and sell it today you would earn a total of  391.00  from holding Lamb Weston Holdings or generate 4.82% return on investment over 90 days.

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

Lamb Weston Holdings  vs.  Hormel Foods

Lamb Weston Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lamb Weston Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in June 2024. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Hormel Foods

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hormel Foods are ranked lower than 10 (%) 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 Lamb Weston and Hormel Foods

The main advantage of trading using opposite Lamb Weston and Hormel Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lamb Weston 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 Lamb Weston Holdings 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.