Correlation Between Farmer Bros and Limoneira

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

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

Diversification Opportunities for Farmer Bros and Limoneira

-0.61

Correlation Coefficient

Farmer Bros  Limoneira

Excellent diversification

The 3 months correlation between Farmer and Limoneira is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Farmer Bros Co and Limoneira Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Limoneira and Farmer Bros 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 Farmer Bros Co are associated (or correlated) with Limoneira. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Limoneira has no effect on the direction of Farmer Bros i.e., Farmer Bros and Limoneira go up and down completely randomly.

Pair Corralation between Farmer Bros and Limoneira

Given the investment horizon of 90 days Farmer Bros Co is expected to under-perform the Limoneira. In addition to that, Farmer Bros is 2.07 times more volatile than Limoneira Co. It trades about -0.07 of its total potential returns per unit of risk. Limoneira Co is currently generating about 0.09 per unit of volatility. If you would invest  2,503  in Limoneira Co on September 4, 2024 and sell it today you would earn a total of  268.00  from holding Limoneira Co or generate 10.71% return on investment over 90 days.

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

Farmer Bros Co  vs.  Limoneira Co

Farmer Bros

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Farmer Bros Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Limoneira

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Limoneira Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Limoneira may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Farmer Bros and Limoneira

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

The idea behind Farmer Bros Co and Limoneira Co 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.