Correlation Between Deere and Volvo AB
Can any of the company-specific risk be diversified away by investing in both Deere and Volvo AB 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 Volvo AB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Deere Company and Volvo AB ser, you can compare the effects of market volatilities on Deere and Volvo AB 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 Volvo AB. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deere and Volvo AB.
Diversification Opportunities for Deere and Volvo AB
Good diversification
The 3 months correlation between Deere and Volvo is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and Volvo AB ser in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volvo AB ser 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 Volvo AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volvo AB ser has no effect on the direction of Deere i.e., Deere and Volvo AB go up and down completely randomly.
Pair Corralation between Deere and Volvo AB
Allowing for the 90-day total investment horizon Deere is expected to generate 3.98 times less return on investment than Volvo AB. But when comparing it to its historical volatility, Deere Company is 1.91 times less risky than Volvo AB. It trades about 0.02 of its potential returns per unit of risk. Volvo AB ser is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 1,646 in Volvo AB ser on August 30, 2024 and sell it today you would earn a total of 770.00 from holding Volvo AB ser or generate 46.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 94.95% |
| Values | Daily Returns |
Deere Company vs. Volvo AB ser
Performance |
| Timeline |
| Deere Company |
| Volvo AB ser |
Deere and Volvo AB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Deere and Volvo AB
The main advantage of trading using opposite Deere and Volvo AB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deere position performs unexpectedly, Volvo AB 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 Volvo AB will offset losses from the drop in Volvo AB's long position.The idea behind Deere Company and Volvo AB ser 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.| Volvo AB vs. Buhler Industries | Volvo AB vs. Ag Growth International | Volvo AB vs. Grow Solutions Holdings | Volvo AB vs. American Premium Water |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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