Correlation Between Deere and AB Volvo
Can any of the company-specific risk be diversified away by investing in both Deere and AB Volvo 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 AB Volvo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Deere Company and AB Volvo, you can compare the effects of market volatilities on Deere and AB Volvo 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 AB Volvo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deere and AB Volvo.
Diversification Opportunities for Deere and AB Volvo
Very good diversification
The 3 months correlation between Deere and VOLAF is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and AB Volvo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB Volvo 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 AB Volvo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AB Volvo has no effect on the direction of Deere i.e., Deere and AB Volvo go up and down completely randomly.
Pair Corralation between Deere and AB Volvo
Allowing for the 90-day total investment horizon Deere Company is expected to generate 3.12 times more return on investment than AB Volvo. However, Deere is 3.12 times more volatile than AB Volvo. It trades about 0.28 of its potential returns per unit of risk. AB Volvo is currently generating about -0.22 per unit of risk. If you would invest 40,604 in Deere Company on August 30, 2024 and sell it today you would earn a total of 5,996 from holding Deere Company or generate 14.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Deere Company vs. AB Volvo
Performance |
| Timeline |
| Deere Company |
| AB Volvo |
Deere and AB Volvo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Deere and AB Volvo
The main advantage of trading using opposite Deere and AB Volvo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deere position performs unexpectedly, AB Volvo 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 AB Volvo will offset losses from the drop in AB Volvo's long position.The idea behind Deere Company and AB Volvo 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.| AB Volvo vs. Volvo AB ADR | AB Volvo vs. Deere Company | AB Volvo vs. Volvo AB ser | AB Volvo vs. Deutsche Post AG |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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