Correlation Between Imedia Brands and Farfetch

By analyzing existing cross correlation between Imedia Brands and Farfetch Ltd Cl, you can compare the effects of market volatilities on Imedia Brands and Farfetch 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 Imedia Brands with a short position of Farfetch. Check out your portfolio center. Please also check ongoing floating volatility patterns of Imedia Brands and Farfetch.

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

Diversification Opportunities for Imedia Brands and Farfetch

0.72
  Correlation Coefficient
Imedia Brands
Farfetch Ltd Cl

Poor diversification

The 24 months correlation between Imedia and Farfetch is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Imedia Brands and Farfetch Ltd Cl in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Farfetch Ltd Cl and Imedia Brands 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 Imedia Brands are associated (or correlated) with Farfetch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farfetch Ltd Cl has no effect on the direction of Imedia Brands i.e., Imedia Brands and Farfetch go up and down completely randomly.

Pair Corralation between Imedia Brands and Farfetch

Given the investment horizon of 90 days Imedia Brands is expected to generate 1.07 times less return on investment than Farfetch. In addition to that, Imedia Brands is 1.31 times more volatile than Farfetch Ltd Cl. It trades about 0.04 of its total potential returns per unit of risk. Farfetch Ltd Cl is currently generating about 0.06 per unit of volatility. If you would invest  1,133  in Farfetch Ltd Cl on October 20, 2021 and sell it today you would earn a total of  1,587  from holding Farfetch Ltd Cl or generate 140.07% return on investment over 90 days.
Time Period24 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Imedia Brands  vs.  Farfetch Ltd Cl

 Performance (%) 
      Timeline 
Imedia Brands 
Imedia Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Imedia Brands are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental drivers, Imedia Brands reported solid returns over the last few months and may actually be approaching a breakup point.

Imedia Price Channel

Farfetch Ltd Cl 
Farfetch Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Farfetch Ltd Cl are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Farfetch reported solid returns over the last few months and may actually be approaching a breakup point.

Farfetch Price Channel

Imedia Brands and Farfetch Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Imedia Brands and Farfetch

The main advantage of trading using opposite Imedia Brands and Farfetch positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Imedia Brands position performs unexpectedly, Farfetch 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 Farfetch will offset losses from the drop in Farfetch's long position.
The idea behind Imedia Brands and Farfetch Ltd Cl 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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