Correlation Between Deere and PT United

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

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

Diversification Opportunities for Deere and PT United

0.26

Correlation Coefficient

Deere  PT United

Modest diversification

The 3 months correlation between Deere and UTY is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and PT United Tractors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT United Tractors and Deere 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 Deere Company are associated (or correlated) with PT United. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT United Tractors has no effect on the direction of Deere i.e., Deere and PT United go up and down completely randomly.

Pair Corralation between Deere and PT United

Assuming the 90 days horizon Deere Company is expected to generate 0.44 times more return on investment than PT United. However, Deere Company is 2.28 times less risky than PT United. It trades about 0.21 of its potential returns per unit of risk. PT United Tractors is currently generating about 0.02 per unit of risk. If you would invest  34,861  in Deere Company on September 3, 2024 and sell it today you would earn a total of  9,219  from holding Deere Company or generate 26.45% return on investment over 90 days.

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

Deere Company  vs.  PT United Tractors

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.

PT United Tractors

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PT United Tractors are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, PT United is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Deere and PT United

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

The idea behind Deere Company and PT United Tractors 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.