Correlation Between Volvo AB and Deere

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

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

Diversification Opportunities for Volvo AB and Deere

-0.04

Correlation Coefficient

Volvo AB  Deere

Good diversification

The 3 months correlation between Volvo and Deere is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Volvo AB ADR and Deere Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deere Company and Volvo AB 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 Volvo AB ADR are associated (or correlated) with Deere. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deere Company has no effect on the direction of Volvo AB i.e., Volvo AB and Deere go up and down completely randomly.

Pair Corralation between Volvo AB and Deere

Assuming the 90 days horizon Volvo AB is expected to generate 2.68 times less return on investment than Deere. But when comparing it to its historical volatility, Volvo AB ADR is 1.01 times less risky than Deere. It trades about 0.06 of its potential returns per unit of risk. Deere Company is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  38,564  in Deere Company on September 12, 2024 and sell it today you would earn a total of  6,239  from holding Deere Company or generate 16.18% return on investment over 90 days.

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

Volvo AB ADR  vs.  Deere Company

Volvo AB ADR

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Volvo AB ADR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Volvo AB is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with Volvo AB and Deere

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

The idea behind Volvo AB ADR and Deere Company 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.