Correlation Between FFW and Farmers Merchants

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

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

Diversification Opportunities for FFW and Farmers Merchants

0.59

Correlation Coefficient

FFW  Farmers Merchants

Very weak diversification

The 3 months correlation between FFW and Farmers is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding FFW Corp. and Farmers Merchants Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmers Merchants Bancorp and FFW 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 FFW Corporation are associated (or correlated) with Farmers Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmers Merchants Bancorp has no effect on the direction of FFW i.e., FFW and Farmers Merchants go up and down completely randomly.

Pair Corralation between FFW and Farmers Merchants

Given the investment horizon of 90 days FFW is expected to generate 1.49 times less return on investment than Farmers Merchants. But when comparing it to its historical volatility, FFW Corporation is 1.78 times less risky than Farmers Merchants. It trades about 0.1 of its potential returns per unit of risk. Farmers Merchants Bancorp is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,877  in Farmers Merchants Bancorp on September 14, 2024 and sell it today you would earn a total of  1,320  from holding Farmers Merchants Bancorp or generate 70.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	68.77%
Values	Daily Returns

FFW Corp.  vs.  Farmers Merchants Bancorp

FFW Corporation

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FFW Corporation are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, FFW may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Farmers Merchants Bancorp

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Farmers Merchants Bancorp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Farmers Merchants displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FFW and Farmers Merchants

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

The idea behind FFW Corporation and Farmers Merchants Bancorp 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.