Correlation Between Deere and China Health
Can any of the company-specific risk be diversified away by investing in both Deere and China Health 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 China Health into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Deere Company and China Health Management, you can compare the effects of market volatilities on Deere and China Health 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 China Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deere and China Health.
Diversification Opportunities for Deere and China Health
-0.4 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Deere and China is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and China Health Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Health Management 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 China Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Health Management has no effect on the direction of Deere i.e., Deere and China Health go up and down completely randomly.
Pair Corralation between Deere and China Health
Allowing for the 90-day total investment horizon Deere Company is expected to generate 0.17 times more return on investment than China Health. However, Deere Company is 5.87 times less risky than China Health. It trades about 0.12 of its potential returns per unit of risk. China Health Management is currently generating about -0.08 per unit of risk. If you would invest 39,327 in Deere Company on September 16, 2024 and sell it today you would earn a total of 4,717 from holding Deere Company or generate 11.99% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Deere Company vs. China Health Management
Performance |
Timeline |
Deere Company |
China Health Management |
Deere and China Health Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Deere and China Health
The main advantage of trading using opposite Deere and China Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deere position performs unexpectedly, China Health 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 China Health will offset losses from the drop in China Health's long position.The idea behind Deere Company and China Health Management 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.China Health vs. Deere Company | China Health vs. Caterpillar | China Health vs. Lion Electric Corp | China Health vs. Nikola Corp |
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 Commodity Directory module to find actively traded commodities issued by global exchanges.
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