Correlation Between Deere and Mini Dow
Can any of the company-specific risk be diversified away by investing in both Deere and Mini Dow 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 Mini Dow into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Deere Company and Mini Dow Jones, you can compare the effects of market volatilities on Deere and Mini Dow 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 Mini Dow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deere and Mini Dow.
Diversification Opportunities for Deere and Mini Dow
Poor diversification
The 3 months correlation between Deere and Mini is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and Mini Dow Jones in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mini Dow Jones 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 Mini Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mini Dow Jones has no effect on the direction of Deere i.e., Deere and Mini Dow go up and down completely randomly.
Pair Corralation between Deere and Mini Dow
Allowing for the 90-day total investment horizon Deere is expected to generate 2.44 times less return on investment than Mini Dow. In addition to that, Deere is 2.18 times more volatile than Mini Dow Jones. It trades about 0.01 of its total potential returns per unit of risk. Mini Dow Jones is currently generating about 0.08 per unit of volatility. If you would invest 3,398,600 in Mini Dow Jones on August 25, 2024 and sell it today you would earn a total of 1,043,100 from holding Mini Dow Jones or generate 30.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 97.26% |
| Values | Daily Returns |
Deere Company vs. Mini Dow Jones
Performance |
| Timeline |
| Deere Company |
| Mini Dow Jones |
Deere and Mini Dow Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Deere and Mini Dow
The main advantage of trading using opposite Deere and Mini Dow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deere position performs unexpectedly, Mini Dow 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 Mini Dow will offset losses from the drop in Mini Dow's long position.The idea behind Deere Company and Mini Dow Jones 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.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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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