Correlation Between Bunge and BBB Foods

Can any of the company-specific risk be diversified away by investing in both Bunge and BBB 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 BBB 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 BBB Foods, you can compare the effects of market volatilities on Bunge and BBB 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 BBB Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bunge and BBB Foods.

Diversification Opportunities for Bunge and BBB Foods

-0.49

Correlation Coefficient

Bunge  BBB Foods

Very good diversification

The 3 months correlation between Bunge and BBB is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Bunge Limited and BBB Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BBB 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 BBB Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BBB Foods has no effect on the direction of Bunge i.e., Bunge and BBB Foods go up and down completely randomly.

Pair Corralation between Bunge and BBB Foods

Allowing for the 90-day total investment horizon Bunge Limited is expected to under-perform the BBB Foods. But the stock apears to be less risky and, when comparing its historical volatility, Bunge Limited is 1.82 times less risky than BBB Foods. The stock trades about -0.1 of its potential returns per unit of risk. The BBB Foods is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  2,992  in BBB Foods on September 3, 2024 and sell it today you would lose (170.00) from holding BBB Foods or give up 5.68% of portfolio value over 90 days.

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

Bunge Limited  vs.  BBB Foods

Bunge Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bunge Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

BBB Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BBB Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, BBB Foods is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bunge and BBB Foods

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

The idea behind Bunge Limited and BBB 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.