Correlation Between Bunge and Rocky Mountain

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

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

Diversification Opportunities for Bunge and Rocky Mountain

-0.85

Correlation Coefficient

Bunge  Rocky Mountain

Pay attention - limited upside

The 3 months correlation between Bunge and Rocky is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding Bunge Limited and Rocky Mountain Chocolate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rocky Mountain Chocolate 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 Rocky Mountain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rocky Mountain Chocolate has no effect on the direction of Bunge i.e., Bunge and Rocky Mountain go up and down completely randomly.

Pair Corralation between Bunge and Rocky Mountain

Allowing for the 90-day total investment horizon Bunge Limited is expected to generate 0.4 times more return on investment than Rocky Mountain. However, Bunge Limited is 2.52 times less risky than Rocky Mountain. It trades about -0.03 of its potential returns per unit of risk. Rocky Mountain Chocolate is currently generating about -0.02 per unit of risk. If you would invest  10,204  in Bunge Limited on September 5, 2024 and sell it today you would lose (1,378) from holding Bunge Limited or give up 13.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Bunge Limited  vs.  Rocky Mountain Chocolate

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 unfluctuating 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.

Rocky Mountain Chocolate

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rocky Mountain Chocolate are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting fundamental indicators, Rocky Mountain reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bunge and Rocky Mountain

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

The idea behind Bunge Limited and Rocky Mountain Chocolate 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.