Correlation Between FarmStory and System

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

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

Diversification Opportunities for FarmStory and System

0.81

Correlation Coefficient

FarmStory  System

Very poor diversification

The 3 months correlation between FarmStory and System is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding FarmStory Co and System and Application in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on System and Application and FarmStory 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 FarmStory Co are associated (or correlated) with System. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of System and Application has no effect on the direction of FarmStory i.e., FarmStory and System go up and down completely randomly.

Pair Corralation between FarmStory and System

Assuming the 90 days trading horizon FarmStory Co is expected to under-perform the System. But the stock apears to be less risky and, when comparing its historical volatility, FarmStory Co is 1.16 times less risky than System. The stock trades about -0.21 of its potential returns per unit of risk. The System and Application is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  151,200  in System and Application on September 11, 2024 and sell it today you would lose (25,400) from holding System and Application or give up 16.8% of portfolio value over 90 days.

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

FarmStory Co  vs.  System and Application

FarmStory

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FarmStory Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

System and Application

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days System and Application has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with FarmStory and System

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

The idea behind FarmStory Co and System and Application 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.