Correlation Between Archer Daniels and BG Foods

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

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

Diversification Opportunities for Archer Daniels and BG Foods

0.73

Correlation Coefficient

Archer Daniels  BG Foods

Poor diversification

The 3 months correlation between Archer and BGS is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Archer Daniels Midland and BG Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BG Foods and Archer Daniels 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 Archer Daniels Midland are associated (or correlated) with BG Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BG Foods has no effect on the direction of Archer Daniels i.e., Archer Daniels and BG Foods go up and down completely randomly.

Pair Corralation between Archer Daniels and BG Foods

Considering the 90-day investment horizon Archer Daniels Midland is expected to generate 0.43 times more return on investment than BG Foods. However, Archer Daniels Midland is 2.3 times less risky than BG Foods. It trades about -0.09 of its potential returns per unit of risk. BG Foods is currently generating about -0.06 per unit of risk. If you would invest  6,005  in Archer Daniels Midland on September 1, 2024 and sell it today you would lose (545.00) from holding Archer Daniels Midland or give up 9.08% of portfolio value over 90 days.

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

Archer Daniels Midland  vs.  BG Foods

Archer Daniels Midland

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Archer Daniels Midland has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

BG Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BG Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in December 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Archer Daniels and BG Foods

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

The idea behind Archer Daniels Midland and BG Foods 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.