Correlation Between Disney and Farmers Merchants

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

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

Diversification Opportunities for Disney and Farmers Merchants

-0.11

Correlation Coefficient

Disney  Farmers Merchants

Good diversification

The 3 months correlation between Disney and Farmers is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney 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 Disney 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 Walt Disney 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 Disney i.e., Disney and Farmers Merchants go up and down completely randomly.

Pair Corralation between Disney and Farmers Merchants

Considering the 90-day investment horizon Walt Disney is expected to under-perform the Farmers Merchants. In addition to that, Disney is 1.27 times more volatile than Farmers Merchants Bancorp. It trades about -0.35 of its total potential returns per unit of risk. Farmers Merchants Bancorp is currently generating about 0.21 per unit of volatility. If you would invest  95,200  in Farmers Merchants Bancorp on February 1, 2024 and sell it today you would earn a total of  3,829  from holding Farmers Merchants Bancorp or generate 4.02% return on investment over 90 days.

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

Walt Disney  vs.  Farmers Merchants Bancorp

Walt Disney

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating forward indicators, Disney unveiled solid returns over the last few months and may actually be approaching a breakup point.

Farmers Merchants Bancorp

Risk-Adjusted Performance

1 of 100

Weak

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

Pair Trading with Disney and Farmers Merchants

The main advantage of trading using opposite Disney and Farmers Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Disney 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 Walt Disney 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.

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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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.