Correlation Between Bunge and ConAgra Foods

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

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

Diversification Opportunities for Bunge and ConAgra Foods

Excellent diversification

The 3 months correlation between Bunge and ConAgra is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Bunge Limited and ConAgra Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ConAgra Foods 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 ConAgra Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ConAgra Foods has no effect on the direction of Bunge i.e., Bunge and ConAgra Foods go up and down completely randomly.

Pair Corralation between Bunge and ConAgra Foods

Allowing for the 90-day total investment horizon Bunge Limited is expected to generate 1.46 times more return on investment than ConAgra Foods. However, Bunge is 1.46 times more volatile than ConAgra Foods. It trades about 0.08 of its potential returns per unit of risk. ConAgra Foods is currently generating about -0.22 per unit of risk. If you would invest  9,541  in Bunge Limited on July 2, 2023 and sell it today you would earn a total of  1,284  from holding Bunge Limited or generate 13.46% return on investment over 90 days.

Bunge Limited  vs.  ConAgra Foods

Bunge Limited

Bunge Performance

11 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in Bunge Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting technical and fundamental indicators, Bunge may actually be approaching a critical reversion point that can send shares even higher in October 2023.

ConAgra Foods

ConAgra Performance

0 of 100

Over the last 90 days ConAgra Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in October 2023. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Bunge and ConAgra Foods

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

The idea behind Bunge Limited and ConAgra Foods 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.

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 Bond Directory module to find actively traded corporate debentures issued by US companies.