Correlation Between Farmers and Aerojet Rocketdyne

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Can any of the company-specific risk be diversified away by investing in both Farmers and Aerojet Rocketdyne 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 and Aerojet Rocketdyne into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Farmers And Merchants and Aerojet Rocketdyne Holdings, you can compare the effects of market volatilities on Farmers and Aerojet Rocketdyne 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 with a short position of Aerojet Rocketdyne. Check out your portfolio center. Please also check ongoing floating volatility patterns of Farmers and Aerojet Rocketdyne.

Diversification Opportunities for Farmers and Aerojet Rocketdyne

-0.29
  Correlation Coefficient

Very good diversification

The 3 months correlation between Farmers and Aerojet is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Farmers And Merchants and Aerojet Rocketdyne Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aerojet Rocketdyne and Farmers 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 And Merchants are associated (or correlated) with Aerojet Rocketdyne. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aerojet Rocketdyne has no effect on the direction of Farmers i.e., Farmers and Aerojet Rocketdyne go up and down completely randomly.

Pair Corralation between Farmers and Aerojet Rocketdyne

Given the investment horizon of 90 days Farmers And Merchants is expected to under-perform the Aerojet Rocketdyne. But the otc stock apears to be less risky and, when comparing its historical volatility, Farmers And Merchants is 1.64 times less risky than Aerojet Rocketdyne. The otc stock trades about -0.04 of its potential returns per unit of risk. The Aerojet Rocketdyne Holdings is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  4,294  in Aerojet Rocketdyne Holdings on September 7, 2022 and sell it today you would earn a total of  1,081  from holding Aerojet Rocketdyne Holdings or generate 25.17% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Farmers And Merchants  vs.  Aerojet Rocketdyne Holdings

 Performance (%) 
       Timeline  
Farmers And Merchants 
Farmers Performance
0 of 100
Over the last 90 days Farmers And Merchants has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady fundamental drivers, Farmers is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

Farmers Price Channel

Aerojet Rocketdyne 
Aerojet Performance
15 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Aerojet Rocketdyne Holdings are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Aerojet Rocketdyne exhibited solid returns over the last few months and may actually be approaching a breakup point.

Aerojet Price Channel

Farmers and Aerojet Rocketdyne Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Farmers and Aerojet Rocketdyne

The main advantage of trading using opposite Farmers and Aerojet Rocketdyne positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Farmers position performs unexpectedly, Aerojet Rocketdyne 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 Aerojet Rocketdyne will offset losses from the drop in Aerojet Rocketdyne's long position.
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The idea behind Farmers And Merchants and Aerojet Rocketdyne Holdings 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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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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