Correlation Between Farmers Edge and Sonic Foundry

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

By analyzing existing cross correlation between Farmers Edge and Sonic Foundry, you can compare the effects of market volatilities on Farmers Edge and Sonic Foundry 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 Sonic Foundry. Check out your portfolio center. Please also check ongoing floating volatility patterns of Farmers Edge and Sonic Foundry.

Diversification Opportunities for Farmers Edge and Sonic Foundry

-0.17

Correlation Coefficient

Farmers Edge  Sonic Foundry

Good diversification

The 3 months correlation between Farmers and Sonic is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Farmers Edge and Sonic Foundry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonic Foundry 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 Sonic Foundry. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonic Foundry has no effect on the direction of Farmers Edge i.e., Farmers Edge and Sonic Foundry go up and down completely randomly.

Pair Corralation between Farmers Edge and Sonic Foundry

Assuming the 90 days horizon Farmers Edge is expected to under-perform the Sonic Foundry. But the pink sheet apears to be less risky and, when comparing its historical volatility, Farmers Edge is 1.37 times less risky than Sonic Foundry. The pink sheet trades about -0.05 of its potential returns per unit of risk. The Sonic Foundry is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  85.00  in Sonic Foundry on October 5, 2024 and sell it today you would lose (3.00) from holding Sonic Foundry or give up 3.53% of portfolio value over 90 days.

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

Farmers Edge  vs.  Sonic Foundry

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.

Sonic Foundry

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sonic Foundry has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Sonic Foundry is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Farmers Edge and Sonic Foundry

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

The idea behind Farmers Edge and Sonic Foundry 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.