Correlation Between Farmers Bancorp and Bank of Botetourt

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

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

Diversification Opportunities for Farmers Bancorp and Bank of Botetourt

0.72

Correlation Coefficient

Farmers Bancorp  Bank of Botetourt

Poor diversification

The 3 months correlation between Farmers and Bank is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Farmers Bancorp and Bank of Botetourt in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Botetourt and Farmers Bancorp 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 Farmers Bancorp are associated (or correlated) with Bank of Botetourt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Botetourt has no effect on the direction of Farmers Bancorp i.e., Farmers Bancorp and Bank of Botetourt go up and down completely randomly.

Pair Corralation between Farmers Bancorp and Bank of Botetourt

Given the investment horizon of 90 days Farmers Bancorp is expected to generate 1.61 times more return on investment than Bank of Botetourt. However, Farmers Bancorp is 1.61 times more volatile than Bank of Botetourt. It trades about 0.22 of its potential returns per unit of risk. Bank of Botetourt is currently generating about 0.05 per unit of risk. If you would invest  3,234  in Farmers Bancorp on October 1, 2024 and sell it today you would earn a total of  614.00  from holding Farmers Bancorp or generate 18.99% return on investment over 90 days.

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

Farmers Bancorp  vs.  Bank of Botetourt

Farmers Bancorp

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Farmers Bancorp are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady fundamental drivers, Farmers Bancorp reported solid returns over the last few months and may actually be approaching a breakup point.

Bank of Botetourt

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Botetourt are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Bank of Botetourt is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Farmers Bancorp and Bank of Botetourt

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

The idea behind Farmers Bancorp and Bank of Botetourt 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.