Correlation Between Freedom Bank and Farmers Merchants

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

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

Diversification Opportunities for Freedom Bank and Farmers Merchants

0.2

Correlation Coefficient

Freedom Bank  Farmers Merchants

Modest diversification

The 3 months correlation between Freedom and Farmers is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Freedom Bank of and Farmers Merchants Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmers Merchants Bancorp and Freedom 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 Freedom Bank of are associated (or correlated) with Farmers Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmers Merchants Bancorp has no effect on the direction of Freedom Bank i.e., Freedom Bank and Farmers Merchants go up and down completely randomly.

Pair Corralation between Freedom Bank and Farmers Merchants

Given the investment horizon of 90 days Freedom Bank is expected to generate 1.87 times less return on investment than Farmers Merchants. But when comparing it to its historical volatility, Freedom Bank of is 1.56 times less risky than Farmers Merchants. It trades about 0.09 of its potential returns per unit of risk. Farmers Merchants Bancorp is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  95,203  in Farmers Merchants Bancorp on September 14, 2024 and sell it today you would earn a total of  11,246  from holding Farmers Merchants Bancorp or generate 11.81% return on investment over 90 days.

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

Freedom Bank of  vs.  Farmers Merchants Bancorp

Freedom Bank

Risk-Adjusted Performance

7 of 100

Modest

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

Farmers Merchants Bancorp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Farmers Merchants Bancorp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Farmers Merchants may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Freedom Bank and Farmers Merchants

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

The idea behind Freedom Bank of and Farmers Merchants Bancorp 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.

Check out your portfolio center.

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.