Correlation Between Eagle Financial and First Farmers

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

By analyzing existing cross correlation between Eagle Financial Services and First Farmers Financial, you can compare the effects of market volatilities on Eagle Financial and First Farmers 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 Eagle Financial with a short position of First Farmers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eagle Financial and First Farmers.

Diversification Opportunities for Eagle Financial and First Farmers

0.62

Correlation Coefficient

Eagle Financial  First Farmers

Poor diversification

The 3 months correlation between Eagle and First is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Financial Services and First Farmers Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Farmers Financial and Eagle Financial 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 Eagle Financial Services are associated (or correlated) with First Farmers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Farmers Financial has no effect on the direction of Eagle Financial i.e., Eagle Financial and First Farmers go up and down completely randomly.

Pair Corralation between Eagle Financial and First Farmers

Given the investment horizon of 90 days Eagle Financial Services is expected to generate 2.75 times more return on investment than First Farmers. However, Eagle Financial is 2.75 times more volatile than First Farmers Financial. It trades about 0.11 of its potential returns per unit of risk. First Farmers Financial is currently generating about 0.07 per unit of risk. If you would invest  3,340  in Eagle Financial Services on September 15, 2024 and sell it today you would earn a total of  224.00  from holding Eagle Financial Services or generate 6.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Eagle Financial Services  vs.  First Farmers Financial

Eagle Financial Services

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eagle Financial Services are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Eagle Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

First Farmers Financial

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Farmers Financial are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable primary indicators, First Farmers is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Eagle Financial and First Farmers

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

The idea behind Eagle Financial Services and First Farmers Financial 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.