Correlation Between BJs Wholesale and Deere

Can any of the company-specific risk be diversified away by investing in both BJs Wholesale and Deere 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 BJs Wholesale and Deere into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BJs Wholesale Club and Deere Company, you can compare the effects of market volatilities on BJs Wholesale and Deere 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 BJs Wholesale with a short position of Deere. Check out your portfolio center. Please also check ongoing floating volatility patterns of BJs Wholesale and Deere.

Diversification Opportunities for BJs Wholesale and Deere

0.45

Correlation Coefficient

BJs Wholesale  Deere

Very weak diversification

The 3 months correlation between BJs and Deere is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding BJs Wholesale Club and Deere Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deere Company and BJs Wholesale 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 BJs Wholesale Club are associated (or correlated) with Deere. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deere Company has no effect on the direction of BJs Wholesale i.e., BJs Wholesale and Deere go up and down completely randomly.

Pair Corralation between BJs Wholesale and Deere

Assuming the 90 days horizon BJs Wholesale is expected to generate 1.09 times less return on investment than Deere. But when comparing it to its historical volatility, BJs Wholesale Club is 1.06 times less risky than Deere. It trades about 0.15 of its potential returns per unit of risk. Deere Company is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  37,850  in Deere Company on October 26, 2024 and sell it today you would earn a total of  7,410  from holding Deere Company or generate 19.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

BJs Wholesale Club  vs.  Deere Company

BJs Wholesale Club

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BJs Wholesale Club are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, BJs Wholesale reported solid returns over the last few months and may actually be approaching a breakup point.

Deere Company

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Deere Company are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Deere reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BJs Wholesale and Deere

The main advantage of trading using opposite BJs Wholesale and Deere positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BJs Wholesale position performs unexpectedly, Deere 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 Deere will offset losses from the drop in Deere's long position.

The idea behind BJs Wholesale Club and Deere Company 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.