Correlation Between CNH Industrial and Deere

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

By analyzing existing cross correlation between CNH Industrial NV and Deere Company, you can compare the effects of market volatilities on CNH Industrial and Deere 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 CNH Industrial with a short position of Deere. Check out your portfolio center. Please also check ongoing floating volatility patterns of CNH Industrial and Deere.

Diversification Opportunities for CNH Industrial and Deere

0.93

Correlation Coefficient

CNH Industrial  Deere

Almost no diversification

The 3 months correlation between CNH and Deere is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding CNH Industrial NV and Deere Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deere Company and CNH Industrial 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 CNH Industrial NV are associated (or correlated) with Deere. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deere Company has no effect on the direction of CNH Industrial i.e., CNH Industrial and Deere go up and down completely randomly.

Pair Corralation between CNH Industrial and Deere

Assuming the 90 days horizon CNH Industrial NV is expected to generate 1.62 times more return on investment than Deere. However, CNH Industrial is 1.62 times more volatile than Deere Company. It trades about 0.15 of its potential returns per unit of risk. Deere Company is currently generating about 0.21 per unit of risk. If you would invest  924.00  in CNH Industrial NV on September 3, 2024 and sell it today you would earn a total of  266.00  from holding CNH Industrial NV or generate 28.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

CNH Industrial NV  vs.  Deere Company

CNH Industrial NV

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CNH Industrial NV are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CNH Industrial reported solid returns over the last few months and may actually be approaching a breakup point.

Deere Company

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Deere Company are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Deere reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CNH Industrial and Deere

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

The idea behind CNH Industrial NV and Deere Company 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.