Correlation Between Farmer Bros and Central Garden

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

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

Diversification Opportunities for Farmer Bros and Central Garden

0.14

Correlation Coefficient

Farmer Bros  Central Garden

Average diversification

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

Pair Corralation between Farmer Bros and Central Garden

Given the investment horizon of 90 days Farmer Bros Co is expected to under-perform the Central Garden. In addition to that, Farmer Bros is 1.26 times more volatile than Central Garden Pet. It trades about -0.26 of its total potential returns per unit of risk. Central Garden Pet is currently generating about -0.14 per unit of volatility. 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

Farmer Bros Co  vs.  Central Garden Pet

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.

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.

Pair Trading with Farmer Bros and Central Garden

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

The idea behind Farmer Bros Co and Central Garden Pet 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 Global Correlations module to find global opportunities by holding instruments from different markets.