Correlation Between Bunge and Pond Technologies

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

By analyzing existing cross correlation between Bunge Limited and Pond Technologies Holdings, you can compare the effects of market volatilities on Bunge and Pond Technologies 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 Pond Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bunge and Pond Technologies.

Diversification Opportunities for Bunge and Pond Technologies

0.39

Correlation Coefficient

Bunge  Pond Technologies

Weak diversification

The 3 months correlation between Bunge and Pond is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Bunge Limited and Pond Technologies Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pond Technologies 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 Pond Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pond Technologies has no effect on the direction of Bunge i.e., Bunge and Pond Technologies go up and down completely randomly.

Pair Corralation between Bunge and Pond Technologies

Allowing for the 90-day total investment horizon Bunge Limited is expected to under-perform the Pond Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Bunge Limited is 13.83 times less risky than Pond Technologies. The stock trades about -0.04 of its potential returns per unit of risk. The Pond Technologies Holdings is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1.92  in Pond Technologies Holdings on December 18, 2024 and sell it today you would lose (1.22) from holding Pond Technologies Holdings or give up 63.54% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.16%
Values	Daily Returns

Bunge Limited  vs.  Pond Technologies Holdings

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.

Pond Technologies

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pond Technologies Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical indicators, Pond Technologies reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bunge and Pond Technologies

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

The idea behind Bunge Limited and Pond Technologies Holdings 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.