Correlation Between Farmers Merchants and NISOURCE

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

Diversification Opportunities for Farmers Merchants and NISOURCE

-0.53

Correlation Coefficient

Farmers Merchants  NISOURCE

Excellent diversification

The 3 months correlation between Farmers and NISOURCE is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Farmers Merchants Bancorp and NISOURCE FIN P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NISOURCE FIN P 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 NISOURCE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NISOURCE FIN P has no effect on the direction of Farmers Merchants i.e., Farmers Merchants and NISOURCE go up and down completely randomly.

Pair Corralation between Farmers Merchants and NISOURCE

Given the investment horizon of 90 days Farmers Merchants Bancorp is expected to generate 1.02 times more return on investment than NISOURCE. However, Farmers Merchants is 1.02 times more volatile than NISOURCE FIN P. It trades about 0.01 of its potential returns per unit of risk. NISOURCE FIN P is currently generating about -0.11 per unit of risk. If you would invest  106,000  in Farmers Merchants Bancorp on October 5, 2024 and sell it today you would earn a total of  0.00  from holding Farmers Merchants Bancorp or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	85.0%
Values	Daily Returns

Farmers Merchants Bancorp  vs.  NISOURCE FIN P

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.

NISOURCE FIN P

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Farmers Merchants and NISOURCE

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

The idea behind Farmers Merchants Bancorp and NISOURCE FIN P 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.