Correlation Between Alamo and Deere

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

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

Diversification Opportunities for Alamo and Deere

0.25

Correlation Coefficient

Alamo  Deere

Modest diversification

The 3 months correlation between Alamo and Deere is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Alamo Group and Deere Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deere Company and Alamo 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 Alamo Group 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 Alamo i.e., Alamo and Deere go up and down completely randomly.

Pair Corralation between Alamo and Deere

Considering the 90-day investment horizon Alamo is expected to generate 156.0 times less return on investment than Deere. But when comparing it to its historical volatility, Alamo Group is 1.24 times less risky than Deere. It trades about 0.0 of its potential returns per unit of risk. Deere Company is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  43,218  in Deere Company on December 25, 2024 and sell it today you would earn a total of  4,675  from holding Deere Company or generate 10.82% return on investment over 90 days.

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

Alamo Group  vs.  Deere Company

Alamo Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alamo Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, Alamo is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Deere Company

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Deere Company are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Deere may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Alamo and Deere

The main advantage of trading using opposite Alamo and Deere positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alamo 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 Alamo Group 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.