Correlation Between Lifeway Foods and Farmer Bros

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

By analyzing existing cross correlation between Lifeway Foods and Farmer Bros Co, you can compare the effects of market volatilities on Lifeway Foods and Farmer Bros 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 Lifeway Foods with a short position of Farmer Bros. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lifeway Foods and Farmer Bros.

Diversification Opportunities for Lifeway Foods and Farmer Bros

-0.88

Correlation Coefficient

Lifeway Foods  Farmer Bros

Pay attention - limited upside

The 3 months correlation between Lifeway and Farmer is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding Lifeway Foods and Farmer Bros Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmer Bros and Lifeway Foods 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 Lifeway Foods are associated (or correlated) with Farmer Bros. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmer Bros has no effect on the direction of Lifeway Foods i.e., Lifeway Foods and Farmer Bros go up and down completely randomly.

Pair Corralation between Lifeway Foods and Farmer Bros

Given the investment horizon of 90 days Lifeway Foods is expected to under-perform the Farmer Bros. But the stock apears to be less risky and, when comparing its historical volatility, Lifeway Foods is 1.25 times less risky than Farmer Bros. The stock trades about -0.06 of its potential returns per unit of risk. The Farmer Bros Co is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  188.00  in Farmer Bros Co on August 30, 2024 and sell it today you would earn a total of  38.00  from holding Farmer Bros Co or generate 20.21% return on investment over 90 days.

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

Lifeway Foods  vs.  Farmer Bros Co

Lifeway Foods

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lifeway Foods are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Lifeway Foods showed solid returns over the last few months and may actually be approaching a breakup point.

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 unsteady performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Lifeway Foods and Farmer Bros

The main advantage of trading using opposite Lifeway Foods and Farmer Bros positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lifeway Foods position performs unexpectedly, Farmer Bros 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 Farmer Bros will offset losses from the drop in Farmer Bros' long position.

The idea behind Lifeway Foods and Farmer Bros Co 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.