Correlation Between Farmers Bank and Bank of Utica
Can any of the company-specific risk be diversified away by investing in both Farmers Bank and Bank of Utica 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 Farmers Bank and Bank of Utica into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Farmers Bank and Bank of Utica, you can compare the effects of market volatilities on Farmers Bank and Bank of Utica 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 Farmers Bank with a short position of Bank of Utica. Check out your portfolio center. Please also check ongoing floating volatility patterns of Farmers Bank and Bank of Utica.
Diversification Opportunities for Farmers Bank and Bank of Utica
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Farmers and Bank is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding The Farmers Bank and Bank of Utica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Utica and Farmers Bank 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 The Farmers Bank are associated (or correlated) with Bank of Utica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Utica has no effect on the direction of Farmers Bank i.e., Farmers Bank and Bank of Utica go up and down completely randomly.
Pair Corralation between Farmers Bank and Bank of Utica
Given the investment horizon of 90 days Farmers Bank is expected to generate 4.08 times less return on investment than Bank of Utica. But when comparing it to its historical volatility, The Farmers Bank is 1.33 times less risky than Bank of Utica. It trades about 0.01 of its potential returns per unit of risk. Bank of Utica is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 43,300 in Bank of Utica on August 29, 2024 and sell it today you would earn a total of 5,500 from holding Bank of Utica or generate 12.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 97.19% |
| Values | Daily Returns |
The Farmers Bank vs. Bank of Utica
Performance |
| Timeline |
| Farmers Bank |
| Bank of Utica |
Farmers Bank and Bank of Utica Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Farmers Bank and Bank of Utica
The main advantage of trading using opposite Farmers Bank and Bank of Utica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Farmers Bank position performs unexpectedly, Bank of Utica 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 Bank of Utica will offset losses from the drop in Bank of Utica's long position.The idea behind The Farmers Bank and Bank of Utica 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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