Correlation Between Farm Pride and State Gas

Can any of the company-specific risk be diversified away by investing in both Farm Pride and State Gas 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 Farm Pride and State Gas into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Farm Pride Foods and State Gas, you can compare the effects of market volatilities on Farm Pride and State Gas 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 Farm Pride with a short position of State Gas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Farm Pride and State Gas.

Diversification Opportunities for Farm Pride and State Gas

-0.47

Correlation Coefficient

Farm Pride  State Gas

Very good diversification

The 3 months correlation between Farm and State is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Farm Pride Foods and State Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Gas and Farm Pride 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 Farm Pride Foods are associated (or correlated) with State Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Gas has no effect on the direction of Farm Pride i.e., Farm Pride and State Gas go up and down completely randomly.

Pair Corralation between Farm Pride and State Gas

Assuming the 90 days trading horizon Farm Pride is expected to generate 2.4 times less return on investment than State Gas. But when comparing it to its historical volatility, Farm Pride Foods is 1.28 times less risky than State Gas. It trades about 0.03 of its potential returns per unit of risk. State Gas is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  4.50  in State Gas on September 12, 2024 and sell it today you would earn a total of  0.30  from holding State Gas or generate 6.67% return on investment over 90 days.

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

Farm Pride Foods  vs.  State Gas

Farm Pride Foods

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Farm Pride Foods are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain primary indicators, Farm Pride may actually be approaching a critical reversion point that can send shares even higher in January 2025.

State Gas

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in State Gas are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, State Gas unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Farm Pride and State Gas

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

The idea behind Farm Pride Foods and State Gas 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.

Check out your portfolio center.

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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.