Correlation Between Bunge and Darling Ingredients

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

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

Diversification Opportunities for Bunge and Darling Ingredients

0.43

Correlation Coefficient

Bunge  Darling Ingredients

Very weak diversification

The 3 months correlation between Bunge and Darling is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Bunge Limited and Darling Ingredients in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darling Ingredients 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 Darling Ingredients. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Darling Ingredients has no effect on the direction of Bunge i.e., Bunge and Darling Ingredients go up and down completely randomly.

Pair Corralation between Bunge and Darling Ingredients

Allowing for the 90-day total investment horizon Bunge Limited is expected to generate 0.55 times more return on investment than Darling Ingredients. However, Bunge Limited is 1.83 times less risky than Darling Ingredients. It trades about 0.01 of its potential returns per unit of risk. Darling Ingredients is currently generating about -0.06 per unit of risk. If you would invest  10,252  in Bunge Limited on January 28, 2024 and sell it today you would earn a total of  21.00  from holding Bunge Limited or generate 0.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Bunge Limited  vs.  Darling Ingredients

Bunge Limited

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bunge Limited are ranked lower than 13 (%) 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.

Darling Ingredients

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Darling Ingredients has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Darling Ingredients is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Bunge and Darling Ingredients

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

The idea behind Bunge Limited and Darling Ingredients 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.