Correlation Between Farmers Bancorp and JD Bancshares

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

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

Diversification Opportunities for Farmers Bancorp and JD Bancshares

0.78

Correlation Coefficient

Farmers Bancorp  JD Bancshares

Poor diversification

The 3 months correlation between Farmers and JDVB is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Farmers Bancorp and JD Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JD Bancshares and Farmers Bancorp 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 Farmers Bancorp are associated (or correlated) with JD Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JD Bancshares has no effect on the direction of Farmers Bancorp i.e., Farmers Bancorp and JD Bancshares go up and down completely randomly.

Pair Corralation between Farmers Bancorp and JD Bancshares

Given the investment horizon of 90 days Farmers Bancorp is expected to under-perform the JD Bancshares. But the pink sheet apears to be less risky and, when comparing its historical volatility, Farmers Bancorp is 1.8 times less risky than JD Bancshares. The pink sheet trades about -0.01 of its potential returns per unit of risk. The JD Bancshares is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,586  in JD Bancshares on September 29, 2024 and sell it today you would lose (136.00) from holding JD Bancshares or give up 5.26% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.54%
Values	Daily Returns

Farmers Bancorp  vs.  JD Bancshares

Farmers Bancorp

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Farmers Bancorp are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady fundamental drivers, Farmers Bancorp reported solid returns over the last few months and may actually be approaching a breakup point.

JD Bancshares

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in JD Bancshares are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, JD Bancshares may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Farmers Bancorp and JD Bancshares

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

The idea behind Farmers Bancorp and JD Bancshares 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.