Correlation Between Deere and American Premium
Can any of the company-specific risk be diversified away by investing in both Deere and American Premium 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 American Premium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Deere Company and American Premium Water, you can compare the effects of market volatilities on Deere and American Premium 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 American Premium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deere and American Premium.
Diversification Opportunities for Deere and American Premium
0.1 | Correlation Coefficient |
Average diversification
The 3 months correlation between Deere and American is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and American Premium Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Premium Water 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 American Premium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Premium Water has no effect on the direction of Deere i.e., Deere and American Premium go up and down completely randomly.
Pair Corralation between Deere and American Premium
Allowing for the 90-day total investment horizon Deere is expected to generate 737.64 times less return on investment than American Premium. But when comparing it to its historical volatility, Deere Company is 179.51 times less risky than American Premium. It trades about 0.07 of its potential returns per unit of risk. American Premium Water is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 0.00 in American Premium Water on November 3, 2024 and sell it today you would earn a total of 0.00 from holding American Premium Water or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 88.31% |
| Values | Daily Returns |
Deere Company vs. American Premium Water
Performance |
| Timeline |
| Deere Company |
| American Premium Water |
Deere and American Premium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Deere and American Premium
The main advantage of trading using opposite Deere and American Premium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deere position performs unexpectedly, American Premium 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 American Premium will offset losses from the drop in American Premium's long position.The idea behind Deere Company and American Premium Water 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.| American Premium vs. First Tractor | American Premium vs. Ag Growth International | American Premium vs. AmeraMex International | American Premium vs. Arts Way Manufacturing Co |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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