Correlation Between National Capital and Farmers Merchants

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

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

Diversification Opportunities for National Capital and Farmers Merchants

-0.22

Correlation Coefficient

National Capital  Farmers Merchants

Very good diversification

The 3 months correlation between National and Farmers is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding National Capital Bank 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 National Capital 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 National Capital Bank 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 National Capital i.e., National Capital and Farmers Merchants go up and down completely randomly.

Pair Corralation between National Capital and Farmers Merchants

Given the investment horizon of 90 days National Capital Bank is expected to generate 76.9 times more return on investment than Farmers Merchants. However, National Capital is 76.9 times more volatile than Farmers Merchants Bancorp. It trades about 0.33 of its potential returns per unit of risk. Farmers Merchants Bancorp is currently generating about 0.13 per unit of risk. If you would invest  19,000  in National Capital Bank on August 30, 2024 and sell it today you would lose (13,000) from holding National Capital Bank or give up 68.42% of portfolio value over 90 days.

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

National Capital Bank  vs.  Farmers Merchants Bancorp

National Capital Bank

Risk-Adjusted Performance

25 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in National Capital Bank are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, National Capital sustained solid returns over the last few months and may actually be approaching a breakup point.

Farmers Merchants Bancorp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Farmers Merchants Bancorp are ranked lower than 10 (%) 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.

Pair Trading with National Capital and Farmers Merchants

The main advantage of trading using opposite National Capital and Farmers Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Capital 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 National Capital Bank 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.