Correlation Between BG Foods and Darling Ingredients
Can any of the company-specific risk be diversified away by investing in both BG Foods 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 BG Foods and Darling Ingredients into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BG Foods and Darling Ingredients, you can compare the effects of market volatilities on BG Foods 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 BG Foods with a short position of Darling Ingredients. Check out your portfolio center. Please also check ongoing floating volatility patterns of BG Foods and Darling Ingredients.
Diversification Opportunities for BG Foods and Darling Ingredients
0.63 | Correlation Coefficient |
Poor diversification
The 1 month correlation between BGS and Darling is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding BG Foods and Darling Ingredients in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darling Ingredients and BG Foods 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 BG Foods 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 BG Foods i.e., BG Foods and Darling Ingredients go up and down completely randomly.
Pair Corralation between BG Foods and Darling Ingredients
Considering the 90-day investment horizon BG Foods is expected to generate 0.62 times more return on investment than Darling Ingredients. However, BG Foods is 1.61 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 -0.04 per unit of risk. If you would invest 1,111 in BG Foods on January 26, 2024 and sell it today you would lose (6.00) from holding BG Foods or give up 0.54% of portfolio value over 90 days.
| Time Period | 1 Month [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BG Foods vs. Darling Ingredients
Performance |
| Timeline |
| BG Foods |
| Darling Ingredients |
BG Foods and Darling Ingredients Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BG Foods and Darling Ingredients
The main advantage of trading using opposite BG Foods and Darling Ingredients positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BG Foods 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 BG Foods 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.| Darling Ingredients vs. J J Snack | Darling Ingredients vs. Post Holdings | Darling Ingredients vs. The Hain Celestial | Darling Ingredients vs. Bellring Brands LLC |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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