Correlation Between Deere and Water Ways

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

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

Diversification Opportunities for Deere and Water Ways

0.31

Correlation Coefficient

Deere  Water Ways

Weak diversification

The 3 months correlation between Deere and Water is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and Water Ways Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Water Ways Technologies 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 Water Ways. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Water Ways Technologies has no effect on the direction of Deere i.e., Deere and Water Ways go up and down completely randomly.

Pair Corralation between Deere and Water Ways

Allowing for the 90-day total investment horizon Deere is expected to generate 63.88 times less return on investment than Water Ways. But when comparing it to its historical volatility, Deere Company is 77.51 times less risky than Water Ways. It trades about 0.14 of its potential returns per unit of risk. Water Ways Technologies is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  0.80  in Water Ways Technologies on September 12, 2024 and sell it today you would earn a total of  0.20  from holding Water Ways Technologies or generate 25.0% 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.  Water Ways Technologies

Deere Company

Risk-Adjusted Performance

11 of 100

OK

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.

Water Ways Technologies

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Water Ways Technologies are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, Water Ways reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Deere and Water Ways

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

The idea behind Deere Company and Water Ways Technologies 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.