Correlation Between Deere and Union Pacific
Can any of the company-specific risk be diversified away by investing in both Deere and Union Pacific 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 Union Pacific into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Deere Company and Union Pacific, you can compare the effects of market volatilities on Deere and Union Pacific 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 Union Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deere and Union Pacific.
Diversification Opportunities for Deere and Union Pacific
-0.17 | Correlation Coefficient |
Good diversification
The 3 months correlation between Deere and Union is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and Union Pacific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Union Pacific 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 Union Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Union Pacific has no effect on the direction of Deere i.e., Deere and Union Pacific go up and down completely randomly.
Pair Corralation between Deere and Union Pacific
Allowing for the 90-day total investment horizon Deere Company is expected to generate 1.11 times more return on investment than Union Pacific. However, Deere is 1.11 times more volatile than Union Pacific. It trades about 0.19 of its potential returns per unit of risk. Union Pacific is currently generating about -0.04 per unit of risk. If you would invest 38,438 in Deere Company on August 30, 2024 and sell it today you would earn a total of 8,162 from holding Deere Company or generate 21.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Deere Company vs. Union Pacific
Performance |
| Timeline |
| Deere Company |
| Union Pacific |
Deere and Union Pacific Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Deere and Union Pacific
The main advantage of trading using opposite Deere and Union Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deere position performs unexpectedly, Union Pacific 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 Union Pacific will offset losses from the drop in Union Pacific's long position.The idea behind Deere Company and Union Pacific 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.| Union Pacific vs. Norfolk Southern | Union Pacific vs. CSX Corporation | Union Pacific vs. United Parcel Service | Union Pacific vs. Canadian National Railway |
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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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