Correlation Between Deere and Oshkosh
Can any of the company-specific risk be diversified away by investing in both Deere and Oshkosh 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 Oshkosh into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Deere Company and Oshkosh, you can compare the effects of market volatilities on Deere and Oshkosh 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 Oshkosh. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deere and Oshkosh.
Diversification Opportunities for Deere and Oshkosh
Significant diversification
The 3 months correlation between Deere and Oshkosh is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and Oshkosh in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oshkosh 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 Oshkosh. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oshkosh has no effect on the direction of Deere i.e., Deere and Oshkosh go up and down completely randomly.
Pair Corralation between Deere and Oshkosh
Allowing for the 90-day total investment horizon Deere Company is expected to generate 1.41 times more return on investment than Oshkosh. However, Deere is 1.41 times more volatile than Oshkosh. It trades about 0.21 of its potential returns per unit of risk. Oshkosh is currently generating about 0.08 per unit of risk. If you would invest 42,500 in Deere Company on October 20, 2024 and sell it today you would earn a total of 3,044 from holding Deere Company or generate 7.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Deere Company vs. Oshkosh
Performance |
| Timeline |
| Deere Company |
| Oshkosh |
Deere and Oshkosh Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Deere and Oshkosh
The main advantage of trading using opposite Deere and Oshkosh positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deere position performs unexpectedly, Oshkosh 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 Oshkosh will offset losses from the drop in Oshkosh's long position.The idea behind Deere Company and Oshkosh 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.| Oshkosh vs. Terex | Oshkosh vs. Astec Industries | Oshkosh vs. Hyster Yale Materials Handling | Oshkosh vs. Manitowoc |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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