Correlation Between Fifth Third and Farmers Bancorp

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Can any of the company-specific risk be diversified away by investing in both Fifth Third and Farmers Bancorp 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 Fifth Third and Farmers Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fifth Third Bancorp and Farmers Bancorp, you can compare the effects of market volatilities on Fifth Third and Farmers Bancorp 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 Fifth Third with a short position of Farmers Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fifth Third and Farmers Bancorp.

Diversification Opportunities for Fifth Third and Farmers Bancorp

-0.63
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Fifth and Farmers is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Fifth Third Bancorp and Farmers Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmers Bancorp and Fifth Third 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 Fifth Third Bancorp are associated (or correlated) with Farmers Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmers Bancorp has no effect on the direction of Fifth Third i.e., Fifth Third and Farmers Bancorp go up and down completely randomly.

Pair Corralation between Fifth Third and Farmers Bancorp

Assuming the 90 days horizon Fifth Third Bancorp is expected to generate 0.42 times more return on investment than Farmers Bancorp. However, Fifth Third Bancorp is 2.36 times less risky than Farmers Bancorp. It trades about 0.05 of its potential returns per unit of risk. Farmers Bancorp is currently generating about -0.02 per unit of risk. If you would invest  2,181  in Fifth Third Bancorp on September 2, 2024 and sell it today you would earn a total of  344.00  from holding Fifth Third Bancorp or generate 15.77% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy64.25%
ValuesDaily Returns

Fifth Third Bancorp  vs.  Farmers Bancorp

 Performance 
       Timeline  
Fifth Third Bancorp 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Fifth Third Bancorp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental drivers, Fifth Third is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.
Farmers Bancorp 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Farmers Bancorp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental drivers, Farmers Bancorp is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Fifth Third and Farmers Bancorp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Fifth Third and Farmers Bancorp

The main advantage of trading using opposite Fifth Third and Farmers Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fifth Third position performs unexpectedly, Farmers Bancorp 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 Farmers Bancorp will offset losses from the drop in Farmers Bancorp's long position.
The idea behind Fifth Third Bancorp and Farmers Bancorp 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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