Correlation Between Farmer Bros and Freshpet

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

-0.18

Correlation Coefficient

Farmer Bros  Freshpet

Good diversification

The 3 months correlation between Farmer and Freshpet is -0.18. 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 generate 1.33 times more return on investment than Freshpet. However, Farmer Bros is 1.33 times more volatile than Freshpet. It trades about -0.18 of its potential returns per unit of risk. Freshpet is currently generating about -0.26 per unit of risk. If you would invest  345.00  in Farmer Bros Co on January 26, 2024 and sell it today you would lose (29.00) from holding Farmer Bros Co or give up 8.41% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Farmer Bros Co  vs.  Freshpet

Farmer Bros

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Farmer Bros Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Freshpet

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Freshpet are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Freshpet unveiled solid returns over the last few months and may actually be approaching a breakup point.

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.

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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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..