Change in Correlation of the Monthly Returns of Generac Holdings and the Vanguard S&P 500 Index ETF

Generac Holdings (GNRC) has a beta of 1.19 based on a linear regression model of the monthly returns of the Vanguard S&P 500 Index ETF (VOO) and Generac Holdings. The company's residential sales slowdown has pushed the stock lower over the past five months. The stock has dropped 55% compared to a 7% drop for the Vanguard S&P 500 Index ETF over the past year. This massive underperformance of the stock has led to a drop in the monthly return correlation of the Vanguard ETF and Generac Holdings.  

     Exhibit 1: A Generac Generator

Source: Generac Holdings Inc.

Here's the graph of the Vanguard S&P 500 Index ETF and Generac Holdings' monthly returns (Exhibit 2).  

Exhibit 2: Monthly Returns of the Vanguard S&P 500 Index ETF and Generac Holdings

Source: Data Provided by IEX Cloud, Author Calculations on Microsoft Excel, Graph Created on RStudio

The graph of the monthly returns also shows a correlation of 0.44 between the two equities.  

Here are the betas of some of the stocks I have covered over the past few months (Exhibit 3). 

Note: Click on each image to see an enlarged version. 

 

Exhibit 3: Beta of Various stocks in the consumer staples, consumer discretionary, and industrial sectors.   

Source: Data Provided by IEX Cloud, Author Calculations using Microsoft Excel and RStudio

Here's the output from the linear regression model:

Call:

lm(formula = GNRC_Monthly_Return ~ VOO_Monthly_Return, data = VOOandGNRC)

Residuals:

     Min       1Q   Median       3Q      Max 

-0.46400 -0.09209  0.00221  0.10001  0.28690 

Coefficients:

                   Estimate Std. Error t value Pr(>|t|)   

(Intercept)         0.01733    0.02170   0.798  0.42915   

VOO_Monthly_Return  1.19915    0.37646   3.185  0.00273 **

---

Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1

Residual standard error: 0.1415 on 42 degrees of freedom

Multiple R-squared:  0.1946, Adjusted R-squared:  0.1754 

F-statistic: 10.15 on 1 and 42 DF,  p-value: 0.002726

The slope of the line is the beta for the stock. In this linear regression model, the co-efficient of VOO_MonthlyReturn (1.19915) is the beta for Generac Holdings. 

The monthly return statistics for Generac holdings show that the stock has a very high standard deviation of 15% in its monthly returns (Exhibit 4).

Exhibit 4: Generac Holdings Monthly Return Statistics [June 2019 - January 2023]    

Source: Data Provided by IEX Cloud, Author Calculations Using Microsoft Excel

Here are the return statistics for the Vanguard S&P 500 Index ETF during the same period (Exhibit 5).

Exhibit 5: Vanguard S&P 500 Index ETF Monthly Return Statistics  [June 2019 - January 2023]  

Source: Data Provided by IEX Cloud, Author Calculations Using Microsoft Excel

The Vanguard S&P 500 Index ETF and Generac Holdings' monthly returns had a high positive correlation of 0.72 between October 2021 and September 2022 (Exhibit 6).   

Exhibit 6: Monthly Return Correlation of the Vanguard S&P 500 Index ETF and Generac Holdings

Source: Data Provided by IEX Cloud, Author Calculations Using Microsoft Excel and RStudio

 

 

  

J.M. Smucker's Low Correlation With The Vanguard S&P 500 Index ETF

 J.M. Smucker is known for its iconic and timeless consumer staples brands (Exhibit 1). 

Note: Click on each image in this blog post to view an enlarged version

Exhibit 1:

Brands Owned by J.M. Smucker & Co. (Source: J.M. Smucker)

Here's the histogram of monthly returns for J.M. Smucker between June 2019 and November 2022 (Exhibit 2).

Exhibit 2:

J.M. Smucker (SJM) Histogram of Monthly Returns (Source: Data provided by IEX Cloud, author calculations & graph using Microsoft Excel)

The average monthly return for J.M. Smucker is less than the Vanguard S&P 500 Index ETF (Exhibit 3).

Exhibit 3:

 J.M. Smucker Monthly Return Statistics - Average, First Quartile, Third Quartile, Standard Deviation, Highest Monthly Return, Lowest Monthly Return (Source: Data provided by IEX Cloud, author calculations & graph using Microsoft Excel)

J.M. Smucker had a lower standard deviation than the Vanguard ETF during this period (Exhibit 4). A company with a lower standard deviation than the well-diversified ETF, a measure of volatility, is an infrequent occurrence. 

Exhibit 4:

Vanguard S&P 500 Index ETF Monthly Return Statistics - Average, First Quartile, Third Quartile, Standard Deviation, Highest Monthly Return, Lowest Monthly Return (Source: Data provided by IEX Cloud, author calculations & graph using Microsoft Excel)

Here's a graph of the monthly returns of the Vanguard ETF (x-axis) and J.M.Smucker (y-axis) with the fitted regression line (Exhibit 5).

Exhibit 5:

Monthly Return Graph of the Vanguard S&P 500 Index ETF and J.M. Smucker (Source: Data provided by IEX Cloud, author calculations & graph using Microsoft Excel & RStudio) 

The correlation of the monthly returns between June 2019 and November 2022 between the Vanguard ETF and J.M. Smucker is a low 0.19 (Exhibit 5). The fitted linear regression line has a p-value of 0.23, indicating that the relationship is insignificant at the 95% confidence interval. 

The fitted linear regression line has a p-value of 0.23, indicating that the relationship is insignificant at the 95% confidence interval. Here's the output from the linear regression:

> summary(lmVOOSJM)

Call:

lm(formula = SJM_Monthly_Return ~ VOO_Monthly_Return, data = VOOandSJM)

Residuals:

      Min        1Q    Median        3Q       Max 

-0.089842 -0.034389  0.002403  0.022171  0.118077 

Coefficients:

                   Estimate  Std. Error t value  Pr(>|t|)

(Intercept)        0.005011   0.007476   0.670    0.507

VOO_Monthly_Return 0.157911   0.130216   1.213    0.232

Residual standard error: 0.04755 on 40 degrees of freedom

Multiple R-squared:  0.03546, Adjusted R-squared:  0.01135 

F-statistic: 1.471 on 1 and 40 DF,  p-value: 0.2324

The beta for J.M. Smucker is 0.15, but the high p-value is a concern. This beta (the coefficient of VOO_Monthly_Return) may not be the true value. Yahoo Finance has calculated a beta of 0.24.    

  

Eastman Chemical's Monthly Returns Have a High Correlation with the Vanguard S&P 500 Index ETF

Here's the histogram of monthly returns for Eastman Chemical (EMN) between June 2019 and November 2022 (Exhibit 1). Please click on the image to see an enlarged version.  

Exhibit 1:

Eastman Chemical Histogram of Monthly Returns (Source: Data Provided by IEX Cloud, Author Calculations using Microsoft Excel)

  The average monthly returns of Eastman Chemical are slightly better than that of the Vanguard S&P 500 Index ETF (Exhibit 2 & 3). But Eastman Chemical has a much higher (nearly double) standard deviation (volatility) of monthly returns than the Vanguard S&P 500 Index ETF.       

Exhibit 2:

Eastman Chemical Average, First Quartile, Third Quartile, and Standard Deviation of Monthly Returns. (Data Provided by IEX Cloud, Author Calculations Using Microsoft Excel)

Exhibit 3:

Vanguard S&P 500 Index ETF Average, First Quartile, Third Quartile, and Standard Deviation of Monthly Returns. (Data Provided by IEX Cloud, Author Calculations Using Microsoft Excel)

Eastman Chemical moves closely with the market since it has a high positive correlation of 0.78.

> cor(VOOandEMN['EMN_Monthly_Return'], VOOandEMN['VOO_Monthly_Return'], method = c("pearson", "kendall", "spearman"))

                      VOO_Monthly_Return

EMN_Monthly_Return          0.7898654

A linear regression model of the monthly returns of Vanguard S&P 500 Index ETF as the independent variable and Eastman Chemical as the dependent variable yields a beta of 1.54.  

> # Conduct the Linear Regression of the Monthly Returns Between $VOO and $EMN

> lmVOOEMN = lm(EMN_Monthly_Return~VOO_Monthly_Return, data = VOOandEMN)

> # Present the summary of the results from the linear regression

> summary(lmVOOEMN)

Call:

lm(formula = EMN_Monthly_Return ~ VOO_Monthly_Return, data = VOOandEMN)

Residuals:

     Min       1Q   Median       3Q      Max 

-0.12433 -0.04969 -0.01148  0.05611  0.13701 

Coefficients:

                    Estimate Std. Error t value  Pr(>|t|)    

(Intercept)        -0.003992  0.010914   -0.366  0.716    

VOO_Monthly_Return  1.548548  0.190108    8.146  5.02e-10 ***

---

Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1

Residual standard error: 0.06942 on 40 degrees of freedom

Multiple R-squared:  0.6239, Adjusted R-squared:  0.6145 

F-statistic: 66.35 on 1 and 40 DF,  p-value: 5.023e-10

The coefficient of VOO_Monthly_Return (slope of the regression line) is the stock's beta. This beta value means that for every 1% change in the monthly returns of the Vanguard S&P 500 Index ETF, Eastman Chemical, on average, changes by 1.54% (monthly). This relationship between the two companies is significant at the 95% confidence interval, given the p-value of 5.02e-10.

This close positive relationship between the two explains why Eastman Chemical has lost 25.6%, while the Vanguard S&P 500 Index ETF (VOO) has lost 14.5%.    

 

Monthly Return Analysis of Conagra Brands

Conagra Brands owns many iconic brands in the food business (Exhibit 1). The company is categorized as a consumer staple. 

Exhibit 1:

 

Here's the histogram of monthly returns of Conagra Brands between June 2019 and November 2022 (Exhibit 2). Please click on the image to see an enlarged version.  

Exhibit 2:

Conagra Brands Histogram of Monthly Returns (Source: Data Provided by IEX Cloud, Author Calculations using Excel)

The average monthly returns of Conagra Brands (Exhibit 3) are very similar to that of the Vanguard S&P 500 Index ETF (Exhibit 4).

Exhibit 3: 

(Source: Data Provided by IEX Cloud, Data Calculations Using Excel)

Exhibit 4:

(Source: Data Provided by IEX Cloud, Data Calculations Using Excel)

The monthly returns of Conagra Brands and the Vanguard S&P 500 Index ETF have a mild positive correlation of 0.27 (Exhibit 5). 

Exhibit 5:  

A 12-month rolling correlation of the monthly returns yielded a very high positive correlation of 0.8 between April 2020 and March 2021 (Exhibit 6).

Exhibit 6:

(Source: Data Provided by IEX Cloud, Correlation Calculations Using RStudio)

A 12-month rolling correlation of the monthly returns yielded the highest negative correlation of 0.37 between July 2021 and June 2022 (Exhibit 7).

Exhibit 7:

(Source: Data Provided by IEX Cloud, Correlation Calculations Using RStudio)

A linear regression model estimates Conagra's Beta at 0.34, which is not statistically significant at the 95% confidence interval. The p-value is 0.083, suggesting that the correlation is not statistically significant.

Here's the output of the linear model:

Call:

lm(formula = CAG_Monthly_Return ~ VOO_Monthly_Return, data = VOOandCAG)

Residuals:

      Min        1Q    Median        3Q       Max 

-0.168638  -0.044057  -0.004737   0.045175  0.170379 

Coefficients:

                   Estimate Std. Error t value Pr(>|t|)  

(Intercept)        0.007141   0.011079   0.645   0.5229  

VOO_Monthly_Return 0.342593   0.192981   1.775   0.0835 .

---

Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1

Residual standard error: 0.07047 on 40 degrees of freedom

Multiple R-squared:  0.07303, Adjusted R-squared:  0.04986 

F-statistic: 3.152 on 1 and 40 DF,  p-value: 0.08346

The adjusted R-squared is 0.049, meaning that just 4.9% of Conagra's monthly returns can be explained by the monthly returns of the Vanguard S&P 500 Index ETF.    

  

Mothly Return Volatility (Beta) of Reynolds Consumer Products

Reynolds Consumer Products (REYN) makes many iconic household products, such as Reynolds Wrap, Hefty waste bags, and FreshLock zipper bags [Exhibit 1]. 

Exhibit 1: Some of the Products Made by Reynolds Consumer Products Co.

Reynolds Consumer Products Source: Reynolds brands 

 I analyzed the monthly return of Reynolds (REYN) between February 2020 and November 2022. Here's the histogram of the monthly returns (click on the image to see an enlarged version) [Exhibit 2]:

Exhibit 2

Source: Data Provided by IEX Cloud, Author Calculations and Graphs Using Microsoft Excel 

Here's the graph of the monthly returns of the Vanguard S&P 500 Index ETF (VOO) on the x-axis and Reynold's monthly returns on the y-axis [Exhibit 3]:

Exhibit 3

Source: Data Provided by IEX Cloud, Graph Created using RStudio

The Pearson correlation of the monthly returns is a positive 0.46. This correlation value can be considered to have medium strength. This correlation is statistically significant at the 95% confidence interval with a p-value of 0.0057.  

A linear regression of the monthly returns of Reynolds and the Vanguard S&P 500 Index ETF yields a beta value of 0.44. This beta value means that for every 1% change in the value of the Vanguard ETF, on average, Reynolds' stock will change by 0.44%. Yahoo Finance also shows a beta of 0.44 [Exhibit 4]. 

Exhibit 4

Source: Yahoo Finance

The adjusted R-squared value provided by the linear regression is 0.19. This adjusted R-squared value indicates that about 19% of Reynold's monthly returns are explained by the monthly returns of the Vanguard S&P 500 Index ETF.  

Here's the output from the linear regression model constructed using RStudio:

Call:

lm(formula = REYN_Monthly_Return ~ VOO_Monthly_Return, data = VOOandREYN_MonthlyReturns)

Residuals:

      Min        1Q    Median        3Q       Max 

-0.092919 -0.037524 -0.003499  0.037494  0.137349 

Coefficients:

                   Estimate Std. Error t value Pr(>|t|)   

(Intercept)        0.001072   0.009234   0.116  0.90828   

VOO_Monthly_Return 0.440311   0.148653   2.962  0.00572 **

---

Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1

Residual standard error: 0.05329 on 32 degrees of freedom

Multiple R-squared:  0.2152, Adjusted R-squared:  0.1907 

F-statistic: 8.773 on 1 and 32 DF,  p-value: 0.005722

The p-value is significant at a 95% confidence interval with a value of 0.005722. 

Here's the residuals plot for the linear regression between Reynolds Consumer Products and the Vanguard S&P 500 Index ETF [Exhibit 5]:

Exhibit 5

Residuals Plot for Linear Regression of the monthly returns of the Vanguard S&P 500 Index as the independent variable and Reynold Consumer Products (Source: Data Provided by IEX Cloud, Graph Created using RStudio)

  Here are the average, first quartile, third quartile, and standard deviation of Reynold's monthly returns [Exhibit 6]:

Exhibit 6

Here are the average, first quartile, third quartile, and standard deviation of the Vanguard S&P 500 Index ETF [Exhibit 7]:

Exhibit 7

  

Linear Regression of Monthly Returns of Cisco Systems and the Vanguard S&P 500 Index ETF

Here is the graph of monthly returns of Cisco Systems (CSCO) plotted against Vanguard S&P 500 Index ETF (VOO):

Exhibit 1: Monthly Returns of Cisco Systems and Vanguard S&P 500 Index ETF [June 2019 -  August 2022]

Monthly Returns of the Vanguard S&P 500 Index ETF and Cisco Systems Inc.

(Source: RStudio, ggplot, Data Provided by IEX Cloud)

Results of the linear regression of monthly returns of Cisco Systems against Vanguard S&P 500 Index ETF:

VOOandCSCO <- read_excel("/CSCO_VOO_LM_September_2022.xlsx", sheet = "Sheet1")

lmCSCOVOO = lm(CSCO_Monthly_Return~VOO_Monthly_Return, data = VOOandCSCO)

summary(lmCSCOVOO)

Call:

lm(formula = CSCO_Monthly_Return ~ VOO_Monthly_Return, data = VOOandCSCO)

Residuals:

      Min        1Q    Median        3Q       Max 

-0.156924 -0.031998 -0.008248  0.038045  0.127839 

Coefficients:

                   Estimate Std. Error t value Pr(>|t|)    

(Intercept)        -0.01062    0.01049  -1.012    0.318    

VOO_Monthly_Return  0.91708    0.18946   4.841 2.31e-05 ***

---

Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1

Residual standard error: 0.06426 on 37 degrees of freedom

Multiple R-squared:  0.3877, Adjusted R-squared:  0.3712 

F-statistic: 23.43 on 1 and 37 DF,  p-value: 2.306e-05

The slope of the regression corresponds to the beta of the stock. In this case, Cisco Systems has a beta of 0.91. 

The adjusted R-squared is 0.37. About 37% of Cisco's monthly return is explained by the returns of the S&P 500 index.  

Cisco Systems cannot protect a portfolio against market volatility since it has a beta value close to 1. Cisco's stock will almost entirely reflect the volatility in the market.