Correlation Between Farmer Bros and BG Foods

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

Diversification Opportunities for Farmer Bros and BG Foods

-0.03
  Correlation Coefficient

Good diversification

The 3 months correlation between Farmer and BGS is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Farmer Bros Co and BG Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BG Foods and Farmer Bros 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 Farmer Bros Co are associated (or correlated) with BG Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BG Foods has no effect on the direction of Farmer Bros i.e., Farmer Bros and BG Foods go up and down completely randomly.

Pair Corralation between Farmer Bros and BG Foods

Given the investment horizon of 90 days Farmer Bros Co is expected to under-perform the BG Foods. But the stock apears to be less risky and, when comparing its historical volatility, Farmer Bros Co is 1.56 times less risky than BG Foods. The stock trades about -0.02 of its potential returns per unit of risk. The BG Foods is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  940.00  in BG Foods on December 29, 2023 and sell it today you would earn a total of  205.00  from holding BG Foods or generate 21.81% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Farmer Bros Co  vs.  BG Foods

 Performance 
       Timeline  
Farmer Bros 

Risk-Adjusted Performance

5 of 100

 
Low
 
High
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Farmer Bros Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Farmer Bros displayed solid returns over the last few months and may actually be approaching a breakup point.
BG Foods 

Risk-Adjusted Performance

4 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in BG Foods are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, BG Foods unveiled solid returns over the last few months and may actually be approaching a breakup point.

Farmer Bros and BG Foods Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Farmer Bros and BG Foods

The main advantage of trading using opposite Farmer Bros and BG Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Farmer Bros position performs unexpectedly, BG Foods 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 BG Foods will offset losses from the drop in BG Foods' long position.
The idea behind Farmer Bros Co and BG Foods 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.

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