Correlation Between General Mills and Archer Daniels

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

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

Diversification Opportunities for General Mills and Archer Daniels

0.89

Correlation Coefficient

General Mills  Archer Daniels

Very poor diversification

The 3 months correlation between General and Archer is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding General Mills and Archer Daniels Midland in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Archer Daniels Midland and General Mills 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 General Mills are associated (or correlated) with Archer Daniels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Archer Daniels Midland has no effect on the direction of General Mills i.e., General Mills and Archer Daniels go up and down completely randomly.

Pair Corralation between General Mills and Archer Daniels

Considering the 90-day investment horizon General Mills is expected to under-perform the Archer Daniels. But the stock apears to be less risky and, when comparing its historical volatility, General Mills is 1.43 times less risky than Archer Daniels. The stock trades about -0.21 of its potential returns per unit of risk. The Archer Daniels Midland is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  5,556  in Archer Daniels Midland on August 24, 2024 and sell it today you would lose (237.00) from holding Archer Daniels Midland or give up 4.27% of portfolio value over 90 days.

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

General Mills  vs.  Archer Daniels Midland

General Mills

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days General Mills has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's forward indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Archer Daniels Midland

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Archer Daniels Midland has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with General Mills and Archer Daniels

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

The idea behind General Mills and Archer Daniels Midland 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.