Correlation Between Farmers Merchants and Advantest

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

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

Diversification Opportunities for Farmers Merchants and Advantest

0.67

Correlation Coefficient

Farmers Merchants  Advantest

Poor diversification

The 3 months correlation between Farmers and Advantest is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Farmers Merchants Bancorp and Advantest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advantest and Farmers Merchants 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 Merchants Bancorp are associated (or correlated) with Advantest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advantest has no effect on the direction of Farmers Merchants i.e., Farmers Merchants and Advantest go up and down completely randomly.

Pair Corralation between Farmers Merchants and Advantest

Given the investment horizon of 90 days Farmers Merchants is expected to generate 3.03 times less return on investment than Advantest. But when comparing it to its historical volatility, Farmers Merchants Bancorp is 1.72 times less risky than Advantest. It trades about 0.13 of its potential returns per unit of risk. Advantest is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  4,280  in Advantest on September 5, 2024 and sell it today you would earn a total of  1,970  from holding Advantest or generate 46.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Farmers Merchants Bancorp  vs.  Advantest

Farmers Merchants Bancorp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Farmers Merchants Bancorp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Farmers Merchants sustained solid returns over the last few months and may actually be approaching a breakup point.

Advantest

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Advantest are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Advantest reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Farmers Merchants and Advantest

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

The idea behind Farmers Merchants Bancorp and Advantest 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.