Correlation Between Better Choice and Farmmi

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

By analyzing existing cross correlation between Better Choice and Farmmi Inc, you can compare the effects of market volatilities on Better Choice and Farmmi 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 Better Choice with a short position of Farmmi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Better Choice and Farmmi.

Diversification Opportunities for Better Choice and Farmmi

-0.6

Correlation Coefficient

Better Choice  Farmmi

Excellent diversification

The 3 months correlation between Better and Farmmi is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Better Choice and Farmmi Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmmi Inc and Better Choice 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 Better Choice are associated (or correlated) with Farmmi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmmi Inc has no effect on the direction of Better Choice i.e., Better Choice and Farmmi go up and down completely randomly.

Pair Corralation between Better Choice and Farmmi

Given the investment horizon of 90 days Better Choice is expected to under-perform the Farmmi. But the stock apears to be less risky and, when comparing its historical volatility, Better Choice is 1.04 times less risky than Farmmi. The stock trades about -0.06 of its potential returns per unit of risk. The Farmmi Inc is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  21.00  in Farmmi Inc on August 30, 2024 and sell it today you would earn a total of  8.00  from holding Farmmi Inc or generate 38.1% return on investment over 90 days.

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

Better Choice  vs.  Farmmi Inc

Better Choice

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Better Choice has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in December 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Farmmi Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Farmmi Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile primary indicators, Farmmi demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Better Choice and Farmmi

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

The idea behind Better Choice and Farmmi Inc 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.