Correlation Between Central Garden and Farmer Bros
Can any of the company-specific risk be diversified away by investing in both Central Garden 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 Central Garden and Farmer Bros into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Central Garden Pet and Farmer Bros Co, you can compare the effects of market volatilities on Central Garden 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 Central Garden with a short position of Farmer Bros. Check out your portfolio center. Please also check ongoing floating volatility patterns of Central Garden and Farmer Bros.
Diversification Opportunities for Central Garden and Farmer Bros
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Central and Farmer is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Central Garden Pet and Farmer Bros Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmer Bros and Central Garden 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 Central Garden Pet 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 Central Garden i.e., Central Garden and Farmer Bros go up and down completely randomly.
Pair Corralation between Central Garden and Farmer Bros
Assuming the 90 days horizon Central Garden Pet is expected to generate 0.66 times more return on investment than Farmer Bros. However, Central Garden Pet is 1.51 times less risky than Farmer Bros. It trades about 0.0 of its potential returns per unit of risk. Farmer Bros Co is currently generating about -0.28 per unit of risk. If you would invest 3,193 in Central Garden Pet on January 12, 2025 and sell it today you would lose (21.00) from holding Central Garden Pet or give up 0.66% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Central Garden Pet vs. Farmer Bros Co
Performance |
| Timeline |
| Central Garden Pet |
| Farmer Bros |
Central Garden and Farmer Bros Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Central Garden and Farmer Bros
The main advantage of trading using opposite Central Garden and Farmer Bros positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Central Garden 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.| Central Garden vs. Seneca Foods Corp | Central Garden vs. Natures Sunshine Products | Central Garden vs. J J Snack | Central Garden vs. Central Garden Pet |
| Farmer Bros vs. Bridgford Foods | Farmer Bros vs. Seneca Foods Corp | Farmer Bros vs. Lifeway Foods | Farmer Bros vs. SSMTF |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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