Correlation Between Farmmi and British Amer

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

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

Diversification Opportunities for Farmmi and British Amer

-0.78

Correlation Coefficient

Farmmi  British Amer

Pay attention - limited upside

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

Pair Corralation between Farmmi and British Amer

Given the investment horizon of 90 days Farmmi Inc is expected to under-perform the British Amer. In addition to that, Farmmi is 3.55 times more volatile than British American Tobacco. It trades about -0.2 of its total potential returns per unit of risk. British American Tobacco is currently generating about 0.15 per unit of volatility. If you would invest  3,540  in British American Tobacco on December 29, 2024 and sell it today you would earn a total of  511.00  from holding British American Tobacco or generate 14.44% return on investment over 90 days.

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

Farmmi Inc  vs.  British American Tobacco

Farmmi Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Farmmi Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

British American Tobacco

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, British Amer demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Farmmi and British Amer

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

The idea behind Farmmi Inc and British American Tobacco 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.