Correlation Between Bunge and Davis Commodities

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

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

Diversification Opportunities for Bunge and Davis Commodities

0.37

Correlation Coefficient

Bunge  Davis Commodities

Weak diversification

The 3 months correlation between Bunge and Davis is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Bunge Limited and Davis Commodities Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Commodities 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 Davis Commodities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis Commodities has no effect on the direction of Bunge i.e., Bunge and Davis Commodities go up and down completely randomly.

Pair Corralation between Bunge and Davis Commodities

Allowing for the 90-day total investment horizon Bunge Limited is expected to generate 0.41 times more return on investment than Davis Commodities. However, Bunge Limited is 2.44 times less risky than Davis Commodities. It trades about 0.27 of its potential returns per unit of risk. Davis Commodities Limited is currently generating about -0.27 per unit of risk. If you would invest  8,337  in Bunge Limited on September 4, 2024 and sell it today you would earn a total of  572.00  from holding Bunge Limited or generate 6.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Bunge Limited  vs.  Davis Commodities Limited

Bunge Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bunge Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Davis Commodities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Davis Commodities Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Bunge and Davis Commodities

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

The idea behind Bunge Limited and Davis Commodities Limited 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.