Correlation Between Deere and Transportation Fund

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

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

Diversification Opportunities for Deere and Transportation Fund

0.67

Correlation Coefficient

Deere  Transportation Fund

Poor diversification

The 3 months correlation between Deere and Transportation is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and Transportation Fund Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transportation Fund 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 Transportation Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transportation Fund has no effect on the direction of Deere i.e., Deere and Transportation Fund go up and down completely randomly.

Pair Corralation between Deere and Transportation Fund

Allowing for the 90-day total investment horizon Deere Company is expected to generate 1.22 times more return on investment than Transportation Fund. However, Deere is 1.22 times more volatile than Transportation Fund Investor. It trades about 0.12 of its potential returns per unit of risk. Transportation Fund Investor is currently generating about 0.08 per unit of risk. If you would invest  36,585  in Deere Company on September 5, 2024 and sell it today you would earn a total of  9,340  from holding Deere Company or generate 25.53% return on investment over 90 days.

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

Deere Company  vs.  Transportation Fund Investor

Deere Company

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Deere Company are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical and fundamental indicators, Deere exhibited solid returns over the last few months and may actually be approaching a breakup point.

Transportation Fund

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Transportation Fund Investor are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Transportation Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Deere and Transportation Fund

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

The idea behind Deere Company and Transportation Fund Investor 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.