Correlation Between Farmers Merchants and Loyalty Ventures

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

Diversification Opportunities for Farmers Merchants and Loyalty Ventures

-0.89

Correlation Coefficient

Farmers Merchants  Loyalty Ventures

Pay attention - limited upside

The 3 months correlation between Farmers and Loyalty is -0.89. Overlapping area represents the amount of risk that can be diversified away by holding Farmers Merchants Bancorp and Loyalty Ventures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Loyalty Ventures 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 Loyalty Ventures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Loyalty Ventures has no effect on the direction of Farmers Merchants i.e., Farmers Merchants and Loyalty Ventures go up and down completely randomly.

Pair Corralation between Farmers Merchants and Loyalty Ventures

Given the investment horizon of 90 days Farmers Merchants Bancorp is expected to generate 0.04 times more return on investment than Loyalty Ventures. However, Farmers Merchants Bancorp is 22.98 times less risky than Loyalty Ventures. It trades about 0.02 of its potential returns per unit of risk. Loyalty Ventures is currently generating about -0.16 per unit of risk. If you would invest  98,925  in Farmers Merchants Bancorp on October 5, 2024 and sell it today you would earn a total of  7,075  from holding Farmers Merchants Bancorp or generate 7.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	5.85%
Values	Daily Returns

Farmers Merchants Bancorp  vs.  Loyalty Ventures

Farmers Merchants Bancorp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Farmers Merchants Bancorp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Farmers Merchants may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Loyalty Ventures

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Loyalty Ventures has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, Loyalty Ventures is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Farmers Merchants and Loyalty Ventures

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

The idea behind Farmers Merchants Bancorp and Loyalty Ventures 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.