Correlation Between Sonic Foundry and Farmers Edge

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

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

Diversification Opportunities for Sonic Foundry and Farmers Edge

-0.17

Correlation Coefficient

Sonic Foundry  Farmers Edge

Good diversification

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

Pair Corralation between Sonic Foundry and Farmers Edge

Given the investment horizon of 90 days Sonic Foundry is expected to generate 1.37 times more return on investment than Farmers Edge. However, Sonic Foundry is 1.37 times more volatile than Farmers Edge. It trades about 0.02 of its potential returns per unit of risk. Farmers Edge is currently generating about -0.05 per unit of risk. 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

Sonic Foundry  vs.  Farmers Edge

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.

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.

Pair Trading with Sonic Foundry and Farmers Edge

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

The idea behind Sonic Foundry and Farmers Edge 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.