Correlation Between Bunge and Lifeway Foods

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

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

Diversification Opportunities for Bunge and Lifeway Foods

0.77

Correlation Coefficient

Bunge  Lifeway Foods

Poor diversification

The 3 months correlation between Bunge and Lifeway is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Bunge Limited and Lifeway Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lifeway Foods 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 Lifeway Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lifeway Foods has no effect on the direction of Bunge i.e., Bunge and Lifeway Foods go up and down completely randomly.

Pair Corralation between Bunge and Lifeway Foods

Allowing for the 90-day total investment horizon Bunge Limited is expected to under-perform the Lifeway Foods. But the stock apears to be less risky and, when comparing its historical volatility, Bunge Limited is 1.25 times less risky than Lifeway Foods. The stock trades about -0.17 of its potential returns per unit of risk. The Lifeway Foods is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  2,481  in Lifeway Foods on November 27, 2024 and sell it today you would lose (381.00) from holding Lifeway Foods or give up 15.36% of portfolio value over 90 days.

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

Bunge Limited  vs.  Lifeway Foods

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 unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Lifeway Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lifeway 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 basic indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Bunge and Lifeway Foods

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

The idea behind Bunge Limited and Lifeway 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .