Correlation Between Bon Natural and Darling Ingredients

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

By analyzing existing cross correlation between Bon Natural Life and Darling Ingredients, you can compare the effects of market volatilities on Bon Natural and Darling Ingredients 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 Bon Natural with a short position of Darling Ingredients. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bon Natural and Darling Ingredients.

Diversification Opportunities for Bon Natural and Darling Ingredients

-0.53

Correlation Coefficient

Bon Natural  Darling Ingredients

Excellent diversification

The 3 months correlation between Bon and Darling is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Bon Natural Life and Darling Ingredients in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darling Ingredients and Bon Natural 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 Bon Natural Life are associated (or correlated) with Darling Ingredients. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Darling Ingredients has no effect on the direction of Bon Natural i.e., Bon Natural and Darling Ingredients go up and down completely randomly.

Pair Corralation between Bon Natural and Darling Ingredients

Considering the 90-day investment horizon Bon Natural Life is expected to under-perform the Darling Ingredients. In addition to that, Bon Natural is 2.27 times more volatile than Darling Ingredients. It trades about -0.06 of its total potential returns per unit of risk. Darling Ingredients is currently generating about -0.05 per unit of volatility. If you would invest  4,951  in Darling Ingredients on September 17, 2024 and sell it today you would lose (1,443) from holding Darling Ingredients or give up 29.15% of portfolio value over 90 days.

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

Bon Natural Life  vs.  Darling Ingredients

Bon Natural Life

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bon Natural Life has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Bon Natural is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Darling Ingredients

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Darling Ingredients has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Darling Ingredients is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Bon Natural and Darling Ingredients

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

The idea behind Bon Natural Life and Darling Ingredients 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.