Correlation Between Deere and Hitachi

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

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

Diversification Opportunities for Deere and Hitachi

0.12

Correlation Coefficient

Deere  Hitachi

Average diversification

The 3 months correlation between Deere and Hitachi is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and Hitachi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hitachi 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 Hitachi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hitachi has no effect on the direction of Deere i.e., Deere and Hitachi go up and down completely randomly.

Pair Corralation between Deere and Hitachi

Allowing for the 90-day total investment horizon Deere is expected to generate 1.13 times less return on investment than Hitachi. But when comparing it to its historical volatility, Deere Company is 3.6 times less risky than Hitachi. It trades about 0.15 of its potential returns per unit of risk. Hitachi is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,585  in Hitachi on September 12, 2024 and sell it today you would earn a total of  190.00  from holding Hitachi or generate 7.35% return on investment over 90 days.

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

Deere Company  vs.  Hitachi

Deere Company

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Deere Company are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Deere exhibited solid returns over the last few months and may actually be approaching a breakup point.

Hitachi

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hitachi are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, Hitachi reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Deere and Hitachi

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

The idea behind Deere Company and Hitachi 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.