Correlation Between Deere and Natural Gas
Can any of the company-specific risk be diversified away by investing in both Deere and Natural Gas 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 Natural Gas into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Deere Company and Natural Gas, you can compare the effects of market volatilities on Deere and Natural Gas 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 Natural Gas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deere and Natural Gas.
Diversification Opportunities for Deere and Natural Gas
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Deere and Natural is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and Natural Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natural Gas 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 Natural Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natural Gas has no effect on the direction of Deere i.e., Deere and Natural Gas go up and down completely randomly.
Pair Corralation between Deere and Natural Gas
Allowing for the 90-day total investment horizon Deere is expected to generate 3.56 times less return on investment than Natural Gas. But when comparing it to its historical volatility, Deere Company is 2.76 times less risky than Natural Gas. It trades about 0.24 of its potential returns per unit of risk. Natural Gas is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest 231.00 in Natural Gas on August 28, 2024 and sell it today you would earn a total of 109.00 from holding Natural Gas or generate 47.19% 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. Natural Gas
Performance |
| Timeline |
| Deere Company |
| Natural Gas |
Deere and Natural Gas Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Deere and Natural Gas
The main advantage of trading using opposite Deere and Natural Gas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deere position performs unexpectedly, Natural Gas 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 Natural Gas will offset losses from the drop in Natural Gas' long position.| Deere vs. MYR Group | Deere vs. Granite Construction Incorporated | Deere vs. Construction Partners | Deere vs. Great Lakes Dredge |
| Natural Gas vs. Soybean Futures | Natural Gas vs. E Mini SP 500 | Natural Gas vs. 30 Year Treasury | Natural Gas vs. 2 Year T Note Futures |
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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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