Correlation Between Bunge and Golden Agri-Resources

Can any of the company-specific risk be diversified away by investing in both Bunge and Golden Agri-Resources 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 Bunge and Golden Agri-Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bunge Limited and Golden Agri Resources, you can compare the effects of market volatilities on Bunge and Golden Agri-Resources 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 Bunge with a short position of Golden Agri-Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bunge and Golden Agri-Resources.

Diversification Opportunities for Bunge and Golden Agri-Resources

-0.26

Correlation Coefficient

Bunge  Golden Agri-Resources

Very good diversification

The 3 months correlation between Bunge and Golden is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Bunge Limited and Golden Agri Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Golden Agri Resources and Bunge 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 Bunge Limited are associated (or correlated) with Golden Agri-Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Golden Agri Resources has no effect on the direction of Bunge i.e., Bunge and Golden Agri-Resources go up and down completely randomly.

Pair Corralation between Bunge and Golden Agri-Resources

Allowing for the 90-day total investment horizon Bunge Limited is expected to under-perform the Golden Agri-Resources. But the stock apears to be less risky and, when comparing its historical volatility, Bunge Limited is 4.85 times less risky than Golden Agri-Resources. The stock trades about -0.04 of its potential returns per unit of risk. The Golden Agri Resources is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  19.00  in Golden Agri Resources on December 27, 2024 and sell it today you would earn a total of  1.00  from holding Golden Agri Resources or generate 5.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	91.67%
Values	Daily Returns

Bunge Limited  vs.  Golden Agri Resources

Bunge Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bunge Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Bunge is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Golden Agri Resources

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Golden Agri Resources are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Golden Agri-Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bunge and Golden Agri-Resources

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

The idea behind Bunge Limited and Golden Agri Resources 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.