Correlation Between Alico and Farmmi

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

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

Diversification Opportunities for Alico and Farmmi

-0.6

Correlation Coefficient

Alico  Farmmi

Excellent diversification

The 3 months correlation between Alico and Farmmi is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Alico Inc and Farmmi Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmmi Inc and Alico 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 Alico Inc are associated (or correlated) with Farmmi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmmi Inc has no effect on the direction of Alico i.e., Alico and Farmmi go up and down completely randomly.

Pair Corralation between Alico and Farmmi

Given the investment horizon of 90 days Alico Inc is expected to generate 0.27 times more return on investment than Farmmi. However, Alico Inc is 3.72 times less risky than Farmmi. It trades about 0.02 of its potential returns per unit of risk. Farmmi Inc is currently generating about -0.05 per unit of risk. If you would invest  2,579  in Alico Inc on August 31, 2024 and sell it today you would earn a total of  101.00  from holding Alico Inc or generate 3.92% return on investment over 90 days.

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

Alico Inc  vs.  Farmmi Inc

Alico Inc

Risk-Adjusted Performance

0 of 100

Very Weak

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

Farmmi Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Farmmi Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile primary indicators, Farmmi demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alico and Farmmi

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

The idea behind Alico Inc and Farmmi Inc 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.