Correlation Between Ag Growth and Deere

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

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

Diversification Opportunities for Ag Growth and Deere

0.36

Correlation Coefficient

Ag Growth  Deere

Weak diversification

The 3 months correlation between AGGZF and Deere is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Ag Growth International and Deere Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deere Company and Ag Growth 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 Ag Growth International 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 Ag Growth i.e., Ag Growth and Deere go up and down completely randomly.

Pair Corralation between Ag Growth and Deere

Assuming the 90 days horizon Ag Growth is expected to generate 2.07 times less return on investment than Deere. But when comparing it to its historical volatility, Ag Growth International is 1.11 times less risky than Deere. It trades about 0.04 of its potential returns per unit of risk. Deere Company is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  39,884  in Deere Company on October 6, 2024 and sell it today you would earn a total of  2,338  from holding Deere Company or generate 5.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.62%
Values	Daily Returns

Ag Growth International  vs.  Deere Company

Ag Growth International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ag Growth International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Deere Company

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Deere Company are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Deere is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Ag Growth and Deere

The main advantage of trading using opposite Ag Growth and Deere positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ag Growth 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 Ag Growth International 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.

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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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.