Correlation Between Farmers Edge and Enghouse Systems

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

By analyzing existing cross correlation between Farmers Edge and Enghouse Systems Limited, you can compare the effects of market volatilities on Farmers Edge and Enghouse Systems 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 Edge with a short position of Enghouse Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Farmers Edge and Enghouse Systems.

Diversification Opportunities for Farmers Edge and Enghouse Systems

0.69

Correlation Coefficient

Farmers Edge  Enghouse Systems

Poor diversification

The 3 months correlation between Farmers and Enghouse is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Farmers Edge and Enghouse Systems Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enghouse Systems and Farmers Edge 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 Edge are associated (or correlated) with Enghouse Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enghouse Systems has no effect on the direction of Farmers Edge i.e., Farmers Edge and Enghouse Systems go up and down completely randomly.

Pair Corralation between Farmers Edge and Enghouse Systems

If you would invest  2,121  in Enghouse Systems Limited on September 5, 2024 and sell it today you would earn a total of  2.00  from holding Enghouse Systems Limited or generate 0.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	1.61%
Values	Daily Returns

Farmers Edge  vs.  Enghouse Systems Limited

Farmers Edge

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Farmers Edge has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Farmers Edge is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Enghouse Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Enghouse Systems Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Enghouse Systems is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Farmers Edge and Enghouse Systems

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

The idea behind Farmers Edge and Enghouse Systems Limited 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.