Correlation Between Bunge and Tootsie Roll

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

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

Diversification Opportunities for Bunge and Tootsie Roll

0.22

Correlation Coefficient

Bunge  Tootsie Roll

Modest diversification

The 3 months correlation between Bunge and Tootsie is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Bunge Limited and Tootsie Roll Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tootsie Roll Industries 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 Tootsie Roll. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tootsie Roll Industries has no effect on the direction of Bunge i.e., Bunge and Tootsie Roll go up and down completely randomly.

Pair Corralation between Bunge and Tootsie Roll

Allowing for the 90-day total investment horizon Bunge Limited is expected to under-perform the Tootsie Roll. But the stock apears to be less risky and, when comparing its historical volatility, Bunge Limited is 1.02 times less risky than Tootsie Roll. The stock trades about -0.04 of its potential returns per unit of risk. The Tootsie Roll Industries is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,073  in Tootsie Roll Industries on December 18, 2024 and sell it today you would earn a total of  59.00  from holding Tootsie Roll Industries or generate 1.92% return on investment over 90 days.

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

Bunge Limited  vs.  Tootsie Roll Industries

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.

Tootsie Roll Industries

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tootsie Roll Industries are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Tootsie Roll is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Bunge and Tootsie Roll

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

The idea behind Bunge Limited and Tootsie Roll Industries 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.