Correlation Between Bunge and Diageo PLC
Can any of the company-specific risk be diversified away by investing in both Bunge and Diageo PLC 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 Diageo PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bunge Limited and Diageo PLC ADR, you can compare the effects of market volatilities on Bunge and Diageo PLC 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 Diageo PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bunge and Diageo PLC.
Diversification Opportunities for Bunge and Diageo PLC
-0.18 | Correlation Coefficient |
Good diversification
The 3 months correlation between Bunge and Diageo is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Bunge Limited and Diageo PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo PLC ADR 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 Diageo PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diageo PLC ADR has no effect on the direction of Bunge i.e., Bunge and Diageo PLC go up and down completely randomly.
Pair Corralation between Bunge and Diageo PLC
Allowing for the 90-day total investment horizon Bunge Limited is expected to generate 1.1 times more return on investment than Diageo PLC. However, Bunge is 1.1 times more volatile than Diageo PLC ADR. It trades about -0.05 of its potential returns per unit of risk. Diageo PLC ADR is currently generating about -0.06 per unit of risk. If you would invest 8,812 in Bunge Limited on November 8, 2024 and sell it today you would lose (1,825) from holding Bunge Limited or give up 20.71% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bunge Limited vs. Diageo PLC ADR
Performance |
| Timeline |
| Bunge Limited |
| Diageo PLC ADR |
Bunge and Diageo PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bunge and Diageo PLC
The main advantage of trading using opposite Bunge and Diageo PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bunge position performs unexpectedly, Diageo PLC 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 Diageo PLC will offset losses from the drop in Diageo PLC's long position.The idea behind Bunge Limited and Diageo PLC ADR 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.| Diageo PLC vs. Brown Forman | Diageo PLC vs. MGP Ingredients | Diageo PLC vs. Brown Forman | Diageo PLC vs. Constellation Brands Class |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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