Correlation Between Fuyao Glass and Farmers Merchants

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

By analyzing existing cross correlation between Fuyao Glass Industry and Farmers Merchants Bancorp, you can compare the effects of market volatilities on Fuyao Glass and Farmers Merchants 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 Fuyao Glass with a short position of Farmers Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fuyao Glass and Farmers Merchants.

Diversification Opportunities for Fuyao Glass and Farmers Merchants

0.77

Correlation Coefficient

Fuyao Glass  Farmers Merchants

Poor diversification

The 3 months correlation between Fuyao and Farmers is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Fuyao Glass Industry and Farmers Merchants Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmers Merchants Bancorp and Fuyao Glass 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 Fuyao Glass Industry are associated (or correlated) with Farmers Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmers Merchants Bancorp has no effect on the direction of Fuyao Glass i.e., Fuyao Glass and Farmers Merchants go up and down completely randomly.

Pair Corralation between Fuyao Glass and Farmers Merchants

Assuming the 90 days horizon Fuyao Glass Industry is expected to generate 2.9 times more return on investment than Farmers Merchants. However, Fuyao Glass is 2.9 times more volatile than Farmers Merchants Bancorp. It trades about 0.05 of its potential returns per unit of risk. Farmers Merchants Bancorp is currently generating about 0.03 per unit of risk. If you would invest  115.00  in Fuyao Glass Industry on October 6, 2024 and sell it today you would earn a total of  52.00  from holding Fuyao Glass Industry or generate 45.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	92.31%
Values	Daily Returns

Fuyao Glass Industry  vs.  Farmers Merchants Bancorp

Fuyao Glass Industry

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fuyao Glass Industry are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Fuyao Glass showed solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Fuyao Glass and Farmers Merchants

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

The idea behind Fuyao Glass Industry and Farmers Merchants Bancorp 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.