Correlation Between Local Bounti and Village Farms

Can any of the company-specific risk be diversified away by investing in both Local Bounti and Village Farms 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 Local Bounti and Village Farms into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Local Bounti Corp and Village Farms International, you can compare the effects of market volatilities on Local Bounti and Village Farms 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 Local Bounti with a short position of Village Farms. Check out your portfolio center. Please also check ongoing floating volatility patterns of Local Bounti and Village Farms.

Diversification Opportunities for Local Bounti and Village Farms

0.69

Correlation Coefficient

Local Bounti  Village Farms

Poor diversification

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

Pair Corralation between Local Bounti and Village Farms

Given the investment horizon of 90 days Local Bounti Corp is expected to generate 4.27 times more return on investment than Village Farms. However, Local Bounti is 4.27 times more volatile than Village Farms International. It trades about 0.19 of its potential returns per unit of risk. Village Farms International is currently generating about -0.07 per unit of risk. If you would invest  134.00  in Local Bounti Corp on October 11, 2024 and sell it today you would earn a total of  81.00  from holding Local Bounti Corp or generate 60.45% return on investment over 90 days.

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

Local Bounti Corp  vs.  Village Farms International

Local Bounti Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Local Bounti Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Local Bounti is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Village Farms Intern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Village Farms International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Local Bounti and Village Farms

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

The idea behind Local Bounti Corp and Village Farms International 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.