Correlation Between Bon Natural and Farmer Bros

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

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

Diversification Opportunities for Bon Natural and Farmer Bros

0.71

Correlation Coefficient

Bon Natural  Farmer Bros

Poor diversification

The 3 months correlation between Bon and Farmer is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Bon Natural Life and Farmer Bros Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmer Bros and Bon Natural 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 Bon Natural Life 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 Bon Natural i.e., Bon Natural and Farmer Bros go up and down completely randomly.

Pair Corralation between Bon Natural and Farmer Bros

Considering the 90-day investment horizon Bon Natural Life is expected to under-perform the Farmer Bros. In addition to that, Bon Natural is 3.02 times more volatile than Farmer Bros Co. It trades about -0.15 of its total potential returns per unit of risk. Farmer Bros Co is currently generating about -0.12 per unit of volatility. If you would invest  341.00  in Farmer Bros Co on March 14, 2024 and sell it today you would lose (61.00) from holding Farmer Bros Co or give up 17.89% of portfolio value over 90 days.

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

Bon Natural Life  vs.  Farmer Bros Co

Bon Natural Life

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bon Natural Life has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in July 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

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

Pair Trading with Bon Natural and Farmer Bros

The main advantage of trading using opposite Bon Natural and Farmer Bros positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bon Natural 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 Bon Natural Life 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.