Correlation Between Farmers Merchants and Eagle Financial

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

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

Diversification Opportunities for Farmers Merchants and Eagle Financial

0.41

Correlation Coefficient

Farmers Merchants  Eagle Financial

Very weak diversification

The 3 months correlation between Farmers and Eagle is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Farmers Merchants Bancorp and Eagle Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eagle Financial Services and Farmers Merchants 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 Farmers Merchants Bancorp are associated (or correlated) with Eagle Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eagle Financial Services has no effect on the direction of Farmers Merchants i.e., Farmers Merchants and Eagle Financial go up and down completely randomly.

Pair Corralation between Farmers Merchants and Eagle Financial

Given the investment horizon of 90 days Farmers Merchants Bancorp is expected to generate 1.75 times more return on investment than Eagle Financial. However, Farmers Merchants is 1.75 times more volatile than Eagle Financial Services. It trades about -0.06 of its potential returns per unit of risk. Eagle Financial Services is currently generating about -0.24 per unit of risk. If you would invest  105,500  in Farmers Merchants Bancorp on December 28, 2024 and sell it today you would lose (5,750) from holding Farmers Merchants Bancorp or give up 5.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	78.33%
Values	Daily Returns

Farmers Merchants Bancorp  vs.  Eagle Financial Services

Farmers Merchants Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Farmers Merchants Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Farmers Merchants is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Eagle Financial Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eagle Financial Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Farmers Merchants and Eagle Financial

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

The idea behind Farmers Merchants Bancorp and Eagle Financial Services 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.