Correlation Between Farmers Merchants and Shenzhen Expressway

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

Diversification Opportunities for Farmers Merchants and Shenzhen Expressway

0.4

Correlation Coefficient

Farmers Merchants  Shenzhen Expressway

Very weak diversification

The 3 months correlation between Farmers and Shenzhen is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Farmers Merchants Bancorp and Shenzhen Expressway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Expressway 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 Shenzhen Expressway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Expressway has no effect on the direction of Farmers Merchants i.e., Farmers Merchants and Shenzhen Expressway go up and down completely randomly.

Pair Corralation between Farmers Merchants and Shenzhen Expressway

Given the investment horizon of 90 days Farmers Merchants Bancorp is expected to generate 2.12 times more return on investment than Shenzhen Expressway. However, Farmers Merchants is 2.12 times more volatile than Shenzhen Expressway. It trades about -0.06 of its potential returns per unit of risk. Shenzhen Expressway is currently generating about -0.17 per unit of risk. If you would invest  105,500  in Farmers Merchants Bancorp on December 30, 2024 and sell it today you would lose (6,000) from holding Farmers Merchants Bancorp or give up 5.69% of portfolio value over 90 days.

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

Farmers Merchants Bancorp  vs.  Shenzhen Expressway

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.

Shenzhen Expressway

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shenzhen Expressway has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Farmers Merchants and Shenzhen Expressway

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

The idea behind Farmers Merchants Bancorp and Shenzhen Expressway 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.