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.    

  

Boeing's Monthly Return Volatility Compared to the Vanguard S&P 500 Index ETF From June 2019 to August 2022

 Given its dominant position in the aerospace market, one would think Boeing's (BA) monthly returns would be less volatile than the S&P 500 index (VOO). But, Boeing has endured a lot in the past few years. First came the trade war with China that froze Boeing out of the second-largest aerospace market in the world.  Then came the COVID-19 pandemic that grounded airlines worldwide and brought Boeing to its knees. We did not even talk about the 737 Max plane crash in Ethiopia that kicked off the disastrous few years for Boeing.  

Boeing has never fully recovered from either the trade war or the pandemic. Boeing remains frozen out of the Chinese market, and airlines are only now seeing air travel return close to pre-pandemic levels (Exhibit 1).

Exhibit 1: TSA Checkpoint Travel Number September 17, 2022 - September 26, 2022

TSA Checkpoint Travel Numbers (Source: TSA.GOV)

Now, the world is grappling with slowing growth due to high inflation and interest rates, which is putting further pressure on Boeing. By the looks of it, Boeing stock may take a decade or more to recover its losses if it ever recovers. Boeing's stock has dropped from $440 in March 2019 to $127 as of September 27 - a loss of 71%.  

Due to these massive crises, Boeing's stock returns have become unhinged from that of the S&P 500 index. A linear regression of the monthly returns of the Vanguard S&P 500 Index and Boeing yields a very high beta of 1.35 (slope of the regression line). The value of 1.35 is the coefficient of the monthly returns of the Vanguard S&P 500 Index ETF (VOO).  Yahoo Finance displays a beta of 1.36 based on 5-year monthly returns.  One can expect any change in the Vanguard ETF to be magnified by Boeing.  For every 1% change in monthly returns of the S&P 500 index, Boeing's monthly returns are expected to change by 1.35%. Also, just 25% (Adjusted R-Squared in the RStudio output below) of Boeing's returns are explained by the monthly returns of the S&P 500 Index.  

Exhibit: Vanguard S&P 500 Index ETF and Boeing Monthly Returns [June 2019 - August 2022]

Vanguard S&P 500 Index ETF and Boeing Monthly Returns [June 2019 - August 2022]
(Source: Data Provided by IEX Cloud, Author Calculations Using RStudio)

Here's the output from the linear regression conducted on RStudio: 

> lmBAVOO = lm(BA_Monthly_Return~VOO_Monthly_Return, data = VOOandBA)

> summary(lmBAVOO)

Call:

lm(formula = BA_Monthly_Return ~ VOO_Monthly_Return, data = VOOandBA)

Residuals:

     Min       1Q   Median       3Q      Max 

-0.26036 -0.07433 -0.00562  0.07323  0.33452 

Coefficients:

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

(Intercept)        -0.02348    0.02007  -1.169 0.249682    

VOO_Monthly_Return  1.35442    0.36247   3.737 0.000628 ***

---

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

Residual standard error: 0.1229 on 37 degrees of freedom

Multiple R-squared:  0.274, Adjusted R-squared:  0.2543 

F-statistic: 13.96 on 1 and 37 DF,  p-value: 0.0006279