Correlation Between Farmer Bros and Lamb Weston

Can any of the company-specific risk be diversified away by investing in both Farmer Bros and Lamb Weston 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 Lamb Weston 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 Lamb Weston Holdings, you can compare the effects of market volatilities on Farmer Bros and Lamb Weston 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 Lamb Weston. Check out your portfolio center. Please also check ongoing floating volatility patterns of Farmer Bros and Lamb Weston.

Diversification Opportunities for Farmer Bros and Lamb Weston

0.45

Correlation Coefficient

Farmer Bros  Lamb Weston

Very weak diversification

The 3 months correlation between Farmer and Lamb is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Farmer Bros Co and Lamb Weston Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lamb Weston Holdings 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 Lamb Weston. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lamb Weston Holdings has no effect on the direction of Farmer Bros i.e., Farmer Bros and Lamb Weston go up and down completely randomly.

Pair Corralation between Farmer Bros and Lamb Weston

Given the investment horizon of 90 days Farmer Bros Co is expected to generate 0.51 times more return on investment than Lamb Weston. However, Farmer Bros Co is 1.98 times less risky than Lamb Weston. It trades about -0.26 of its potential returns per unit of risk. Lamb Weston Holdings is currently generating about -0.13 per unit of risk. If you would invest  208.00  in Farmer Bros Co on October 6, 2024 and sell it today you would lose (28.00) from holding Farmer Bros Co or give up 13.46% of portfolio value over 90 days.

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

Farmer Bros Co  vs.  Lamb Weston Holdings

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.

Lamb Weston Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lamb Weston Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Lamb Weston is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Farmer Bros and Lamb Weston

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

The idea behind Farmer Bros Co and Lamb Weston Holdings 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.