Correlation Between Bunge and Archer Daniels
Can any of the company-specific risk be diversified away by investing in both Bunge and Archer Daniels 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 Archer Daniels into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bunge Limited and Archer Daniels Midland, you can compare the effects of market volatilities on Bunge and Archer Daniels 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 Archer Daniels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bunge and Archer Daniels.
Diversification Opportunities for Bunge and Archer Daniels
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Bunge and Archer is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Bunge Limited and Archer Daniels Midland in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Archer Daniels Midland 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 Archer Daniels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Archer Daniels Midland has no effect on the direction of Bunge i.e., Bunge and Archer Daniels go up and down completely randomly.
Pair Corralation between Bunge and Archer Daniels
Allowing for the 90-day total investment horizon Bunge Limited is expected to under-perform the Archer Daniels. In addition to that, Bunge is 1.12 times more volatile than Archer Daniels Midland. It trades about -0.08 of its total potential returns per unit of risk. Archer Daniels Midland is currently generating about -0.06 per unit of volatility. If you would invest 5,981 in Archer Daniels Midland on August 24, 2024 and sell it today you would lose (662.00) from holding Archer Daniels Midland or give up 11.07% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bunge Limited vs. Archer Daniels Midland
Performance |
| Timeline |
| Bunge Limited |
| Archer Daniels Midland |
Bunge and Archer Daniels Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bunge and Archer Daniels
The main advantage of trading using opposite Bunge and Archer Daniels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bunge position performs unexpectedly, Archer Daniels 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 Archer Daniels will offset losses from the drop in Archer Daniels' long position.The idea behind Bunge Limited and Archer Daniels Midland 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.| Archer Daniels vs. Tyson Foods | Archer Daniels vs. Cal Maine Foods | Archer Daniels vs. Dole PLC | Archer Daniels vs. Adecoagro SA |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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