Correlation Between Deere and Fortran Corp

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Can any of the company-specific risk be diversified away by investing in both Deere and Fortran Corp 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 Fortran Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Deere Company and Fortran Corp, you can compare the effects of market volatilities on Deere and Fortran Corp 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 Fortran Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deere and Fortran Corp.

Diversification Opportunities for Deere and Fortran Corp

0.6
  Correlation Coefficient

Poor diversification

The 3 months correlation between Deere and Fortran is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and Fortran Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortran Corp 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 Fortran Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortran Corp has no effect on the direction of Deere i.e., Deere and Fortran Corp go up and down completely randomly.

Pair Corralation between Deere and Fortran Corp

Allowing for the 90-day total investment horizon Deere is expected to generate 44.69 times less return on investment than Fortran Corp. But when comparing it to its historical volatility, Deere Company is 17.77 times less risky than Fortran Corp. It trades about 0.06 of its potential returns per unit of risk. Fortran Corp is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1.22  in Fortran Corp on September 22, 2024 and sell it today you would earn a total of  1.27  from holding Fortran Corp or generate 104.1% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Deere Company  vs.  Fortran Corp

 Performance 
       Timeline  
Deere Company 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Deere Company are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Deere may actually be approaching a critical reversion point that can send shares even higher in January 2025.
Fortran Corp 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Fortran Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Fortran Corp displayed solid returns over the last few months and may actually be approaching a breakup point.

Deere and Fortran Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Deere and Fortran Corp

The main advantage of trading using opposite Deere and Fortran Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deere position performs unexpectedly, Fortran Corp 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 Fortran Corp will offset losses from the drop in Fortran Corp's long position.
The idea behind Deere Company and Fortran Corp 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.
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..

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