Correlation Between Bunge and SalMar ASA

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

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

Diversification Opportunities for Bunge and SalMar ASA

-0.37

Correlation Coefficient

Bunge  SalMar ASA

Very good diversification

The 3 months correlation between Bunge and SalMar is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Bunge Limited and SalMar ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SalMar ASA 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 SalMar ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SalMar ASA has no effect on the direction of Bunge i.e., Bunge and SalMar ASA go up and down completely randomly.

Pair Corralation between Bunge and SalMar ASA

Allowing for the 90-day total investment horizon Bunge Limited is expected to under-perform the SalMar ASA. But the stock apears to be less risky and, when comparing its historical volatility, Bunge Limited is 1.96 times less risky than SalMar ASA. The stock trades about -0.05 of its potential returns per unit of risk. The SalMar ASA is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,127  in SalMar ASA on December 25, 2024 and sell it today you would earn a total of  173.00  from holding SalMar ASA or generate 15.35% return on investment over 90 days.

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

Bunge Limited  vs.  SalMar ASA

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.

SalMar ASA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SalMar ASA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SalMar ASA showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bunge and SalMar ASA

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

The idea behind Bunge Limited and SalMar ASA 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.

Check out your portfolio center.

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.