Correlation Between Bunge and British Amer

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

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

Diversification Opportunities for Bunge and British Amer

0.17

Correlation Coefficient

Bunge  British Amer

Average diversification

The 3 months correlation between Bunge and British is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Bunge Limited and British American Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on British American Tobacco 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 British Amer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of British American Tobacco has no effect on the direction of Bunge i.e., Bunge and British Amer go up and down completely randomly.

Pair Corralation between Bunge and British Amer

Allowing for the 90-day total investment horizon Bunge Limited is expected to generate 1.47 times more return on investment than British Amer. However, Bunge is 1.47 times more volatile than British American Tobacco. It trades about 0.19 of its potential returns per unit of risk. British American Tobacco is currently generating about -0.09 per unit of risk. If you would invest  9,994  in Bunge Limited on January 25, 2024 and sell it today you would earn a total of  607.00  from holding Bunge Limited or generate 6.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

Bunge Limited  vs.  British American Tobacco

Bunge Limited

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bunge Limited are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Bunge reported solid returns over the last few months and may actually be approaching a breakup point.

British American Tobacco

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, British Amer is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Bunge and British Amer

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

The idea behind Bunge Limited and British American Tobacco 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.