Correlation Between ForFarmers and Flow Traders

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

By analyzing existing cross correlation between ForFarmers NV and Flow Traders BV, you can compare the effects of market volatilities on ForFarmers and Flow Traders 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 ForFarmers with a short position of Flow Traders. Check out your portfolio center. Please also check ongoing floating volatility patterns of ForFarmers and Flow Traders.

Diversification Opportunities for ForFarmers and Flow Traders

0.78

Correlation Coefficient

ForFarmers  Flow Traders

Poor diversification

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

Pair Corralation between ForFarmers and Flow Traders

Assuming the 90 days trading horizon ForFarmers is expected to generate 3.71 times less return on investment than Flow Traders. But when comparing it to its historical volatility, ForFarmers NV is 1.03 times less risky than Flow Traders. It trades about 0.06 of its potential returns per unit of risk. Flow Traders BV is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,746  in Flow Traders BV on August 30, 2024 and sell it today you would earn a total of  370.00  from holding Flow Traders BV or generate 21.19% return on investment over 90 days.

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

ForFarmers NV  vs.  Flow Traders BV

ForFarmers NV

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ForFarmers NV are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, ForFarmers is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Flow Traders BV

Risk-Adjusted Performance

17 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Flow Traders BV are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Flow Traders unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ForFarmers and Flow Traders

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

The idea behind ForFarmers NV and Flow Traders BV 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.

Check out your portfolio center.

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.