Correlation Between Farmers Merchants and Solvay SA

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

Diversification Opportunities for Farmers Merchants and Solvay SA

-0.45

Correlation Coefficient

Farmers Merchants  Solvay SA

Very good diversification

The 3 months correlation between Farmers and Solvay is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Farmers Merchants Bancorp and Solvay SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solvay SA 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 Solvay SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solvay SA has no effect on the direction of Farmers Merchants i.e., Farmers Merchants and Solvay SA go up and down completely randomly.

Pair Corralation between Farmers Merchants and Solvay SA

Given the investment horizon of 90 days Farmers Merchants Bancorp is expected to under-perform the Solvay SA. But the otc stock apears to be less risky and, when comparing its historical volatility, Farmers Merchants Bancorp is 2.01 times less risky than Solvay SA. The otc stock trades about -0.05 of its potential returns per unit of risk. The Solvay SA is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3,139  in Solvay SA on December 29, 2024 and sell it today you would earn a total of  490.00  from holding Solvay SA or generate 15.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.72%
Values	Daily Returns

Farmers Merchants Bancorp  vs.  Solvay SA

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.

Solvay SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Solvay SA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Solvay SA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Farmers Merchants and Solvay SA

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

The idea behind Farmers Merchants Bancorp and Solvay SA 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.