Correlation Between Bunge and Target

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

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

Diversification Opportunities for Bunge and Target

0.75

Correlation Coefficient

Bunge  Target

Poor diversification

The 3 months correlation between Bunge and Target is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Bunge Limited and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target 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 Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target has no effect on the direction of Bunge i.e., Bunge and Target go up and down completely randomly.

Pair Corralation between Bunge and Target

Allowing for the 90-day total investment horizon Bunge Limited is expected to generate 0.77 times more return on investment than Target. However, Bunge Limited is 1.29 times less risky than Target. It trades about 0.0 of its potential returns per unit of risk. Target is currently generating about -0.01 per unit of risk. If you would invest  10,708  in Bunge Limited on February 3, 2024 and sell it today you would lose (572.00) from holding Bunge Limited or give up 5.34% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Bunge Limited  vs.  Target

Bunge Limited

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bunge Limited are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Bunge reported solid returns over the last few months and may actually be approaching a breakup point.

Target

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Target are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Target unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bunge and Target

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

The idea behind Bunge Limited and Target 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.