Correlation Between Farmers Bank and Eastern Michigan

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

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

Diversification Opportunities for Farmers Bank and Eastern Michigan

0.51

Correlation Coefficient

Farmers Bank  Eastern Michigan

Very weak diversification

The 3 months correlation between Farmers and Eastern is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding The Farmers Bank and Eastern Michigan Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern Michigan Fin and Farmers Bank 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 The Farmers Bank are associated (or correlated) with Eastern Michigan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern Michigan Fin has no effect on the direction of Farmers Bank i.e., Farmers Bank and Eastern Michigan go up and down completely randomly.

Pair Corralation between Farmers Bank and Eastern Michigan

Given the investment horizon of 90 days Farmers Bank is expected to generate 14.02 times less return on investment than Eastern Michigan. But when comparing it to its historical volatility, The Farmers Bank is 1.44 times less risky than Eastern Michigan. It trades about 0.02 of its potential returns per unit of risk. Eastern Michigan Financial is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  3,050  in Eastern Michigan Financial on August 31, 2024 and sell it today you would earn a total of  491.00  from holding Eastern Michigan Financial or generate 16.1% return on investment over 90 days.

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

The Farmers Bank  vs.  Eastern Michigan Financial

Farmers Bank

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Farmers Bank are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Farmers Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Eastern Michigan Fin

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Eastern Michigan Financial are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile forward indicators, Eastern Michigan displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Farmers Bank and Eastern Michigan

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

The idea behind The Farmers Bank and Eastern Michigan Financial 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.