Correlation Between Farmer Bros and Freshpet

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Can any of the company-specific risk be diversified away by investing in both Farmer Bros and Freshpet 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 Freshpet 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 Freshpet, you can compare the effects of market volatilities on Farmer Bros and Freshpet 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 Freshpet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Farmer Bros and Freshpet.

Diversification Opportunities for Farmer Bros and Freshpet

0.25
  Correlation Coefficient

Modest diversification

The 3 months correlation between Farmer and Freshpet is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Farmer Bros Co and Freshpet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freshpet 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 Freshpet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freshpet has no effect on the direction of Farmer Bros i.e., Farmer Bros and Freshpet go up and down completely randomly.

Pair Corralation between Farmer Bros and Freshpet

Given the investment horizon of 90 days Farmer Bros Co is expected to under-perform the Freshpet. In addition to that, Farmer Bros is 2.23 times more volatile than Freshpet. It trades about -0.02 of its total potential returns per unit of risk. Freshpet is currently generating about 0.21 per unit of volatility. If you would invest  10,828  in Freshpet on December 29, 2023 and sell it today you would earn a total of  743.00  from holding Freshpet or generate 6.86% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Farmer Bros Co  vs.  Freshpet

 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.
Freshpet 

Risk-Adjusted Performance

13 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Freshpet are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Freshpet unveiled solid returns over the last few months and may actually be approaching a breakup point.

Farmer Bros and Freshpet Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Farmer Bros and Freshpet

The main advantage of trading using opposite Farmer Bros and Freshpet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Farmer Bros position performs unexpectedly, Freshpet 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 Freshpet will offset losses from the drop in Freshpet's long position.
The idea behind Farmer Bros Co and Freshpet 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.

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