Correlation Between Deere and E Mini
Can any of the company-specific risk be diversified away by investing in both Deere and E Mini 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 E Mini into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Deere Company and E Mini SP 500, you can compare the effects of market volatilities on Deere and E Mini 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 E Mini. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deere and E Mini.
Diversification Opportunities for Deere and E Mini
Poor diversification
The 3 months correlation between Deere and ESUSD is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and E Mini SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E Mini SP 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 E Mini. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E Mini SP has no effect on the direction of Deere i.e., Deere and E Mini go up and down completely randomly.
Pair Corralation between Deere and E Mini
Allowing for the 90-day total investment horizon Deere Company is expected to generate 1.88 times more return on investment than E Mini. However, Deere is 1.88 times more volatile than E Mini SP 500. It trades about 0.1 of its potential returns per unit of risk. E Mini SP 500 is currently generating about 0.11 per unit of risk. If you would invest 36,654 in Deere Company on August 26, 2024 and sell it today you would earn a total of 8,011 from holding Deere Company or generate 21.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 97.69% |
| Values | Daily Returns |
Deere Company vs. E Mini SP 500
Performance |
| Timeline |
| Deere Company |
| E Mini SP |
Deere and E Mini Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Deere and E Mini
The main advantage of trading using opposite Deere and E Mini positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deere position performs unexpectedly, E Mini 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 E Mini will offset losses from the drop in E Mini's long position.The idea behind Deere Company and E Mini SP 500 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.| E Mini vs. Natural Gas | E Mini vs. Five Year Treasury Note | E Mini vs. Micro Gold Futures | E Mini vs. Class III Milk |
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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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