Correlation Between BG Foods and Farmer Bros
Can any of the company-specific risk be diversified away by investing in both BG Foods and Farmer Bros 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 BG Foods and Farmer Bros into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BG Foods and Farmer Bros Co, you can compare the effects of market volatilities on BG Foods and Farmer Bros 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 BG Foods with a short position of Farmer Bros. Check out your portfolio center. Please also check ongoing floating volatility patterns of BG Foods and Farmer Bros.
Diversification Opportunities for BG Foods and Farmer Bros
-0.08 | Correlation Coefficient |
Good diversification
The 3 months correlation between BGS and Farmer is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding BG Foods and Farmer Bros Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmer Bros and BG Foods 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 BG Foods are associated (or correlated) with Farmer Bros. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmer Bros has no effect on the direction of BG Foods i.e., BG Foods and Farmer Bros go up and down completely randomly.
Pair Corralation between BG Foods and Farmer Bros
Considering the 90-day investment horizon BG Foods is expected to generate 0.73 times more return on investment than Farmer Bros. However, BG Foods is 1.37 times less risky than Farmer Bros. It trades about -0.02 of its potential returns per unit of risk. Farmer Bros Co is currently generating about -0.18 per unit of risk. If you would invest 1,117 in BG Foods on January 25, 2024 and sell it today you would lose (12.00) from holding BG Foods or give up 1.07% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BG Foods vs. Farmer Bros Co
Performance |
| Timeline |
| BG Foods |
| Farmer Bros |
BG Foods and Farmer Bros Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BG Foods and Farmer Bros
The main advantage of trading using opposite BG Foods and Farmer Bros positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BG Foods position performs unexpectedly, Farmer Bros 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 Farmer Bros will offset losses from the drop in Farmer Bros' long position.The idea behind BG Foods and Farmer Bros Co 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.| Farmer Bros vs. Bridgford Foods | Farmer Bros vs. Seneca Foods Corp | Farmer Bros vs. Lifeway Foods | Farmer Bros vs. J J Snack |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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