Correlation Between Central Garden and Farmer Bros

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

By analyzing existing cross correlation between Central Garden Pet and Farmer Bros Co, you can compare the effects of market volatilities on Central Garden and Farmer Bros 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 Central Garden with a short position of Farmer Bros. Check out your portfolio center. Please also check ongoing floating volatility patterns of Central Garden and Farmer Bros.

Diversification Opportunities for Central Garden and Farmer Bros

0.14

Correlation Coefficient

Central Garden  Farmer Bros

Average diversification

The 3 months correlation between Central and Farmer is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Central Garden Pet and Farmer Bros Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmer Bros and Central Garden 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 Central Garden Pet are associated (or correlated) with Farmer Bros. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmer Bros has no effect on the direction of Central Garden i.e., Central Garden and Farmer Bros go up and down completely randomly.

Pair Corralation between Central Garden and Farmer Bros

Assuming the 90 days horizon Central Garden Pet is expected to generate 0.79 times more return on investment than Farmer Bros. However, Central Garden Pet is 1.26 times less risky than Farmer Bros. It trades about -0.14 of its potential returns per unit of risk. Farmer Bros Co is currently generating about -0.26 per unit of risk. If you would invest  3,466  in Central Garden Pet on October 6, 2024 and sell it today you would lose (215.00) from holding Central Garden Pet or give up 6.2% of portfolio value over 90 days.

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

Central Garden Pet  vs.  Farmer Bros Co

Central Garden Pet

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Central Garden Pet are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Central Garden sustained solid returns over the last few months and may actually be approaching a breakup point.

Farmer Bros

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Farmer Bros Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic 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 Central Garden and Farmer Bros

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

The idea behind Central Garden Pet and Farmer Bros Co 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .