Correlation Between Bunge and African Agriculture
Can any of the company-specific risk be diversified away by investing in both Bunge and African Agriculture 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 African Agriculture into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bunge Limited and African Agriculture Holdings, you can compare the effects of market volatilities on Bunge and African Agriculture 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 African Agriculture. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bunge and African Agriculture.
Diversification Opportunities for Bunge and African Agriculture
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Bunge and African is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Bunge Limited and African Agriculture Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on African Agriculture 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 African Agriculture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of African Agriculture has no effect on the direction of Bunge i.e., Bunge and African Agriculture go up and down completely randomly.
Pair Corralation between Bunge and African Agriculture
Allowing for the 90-day total investment horizon Bunge Limited is expected to generate 0.07 times more return on investment than African Agriculture. However, Bunge Limited is 14.95 times less risky than African Agriculture. It trades about -0.09 of its potential returns per unit of risk. African Agriculture Holdings is currently generating about -0.28 per unit of risk. If you would invest 9,855 in Bunge Limited on September 3, 2024 and sell it today you would lose (881.00) from holding Bunge Limited or give up 8.94% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 31.25% |
| Values | Daily Returns |
Bunge Limited vs. African Agriculture Holdings
Performance |
| Timeline |
| Bunge Limited |
| African Agriculture |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Bunge and African Agriculture Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bunge and African Agriculture
The main advantage of trading using opposite Bunge and African Agriculture positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bunge position performs unexpectedly, African Agriculture 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 African Agriculture will offset losses from the drop in African Agriculture's long position.The idea behind Bunge Limited and African Agriculture 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.| African Agriculture vs. American Airlines Group | African Agriculture vs. Mesa Air Group | African Agriculture vs. Everspin Technologies | African Agriculture vs. Tower Semiconductor |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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