Correlation Between Arts Way and Deere

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

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

Diversification Opportunities for Arts Way and Deere

-0.21

Correlation Coefficient

Arts Way  Deere

Very good diversification

The 3 months correlation between Arts and Deere is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Arts Way Manufacturing Co and Deere Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deere Company and Arts Way 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 Arts Way Manufacturing Co 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 Arts Way i.e., Arts Way and Deere go up and down completely randomly.

Pair Corralation between Arts Way and Deere

Given the investment horizon of 90 days Arts Way Manufacturing Co is expected to generate 6.09 times more return on investment than Deere. However, Arts Way is 6.09 times more volatile than Deere Company. It trades about 0.05 of its potential returns per unit of risk. Deere Company is currently generating about 0.05 per unit of risk. If you would invest  164.00  in Arts Way Manufacturing Co on December 1, 2024 and sell it today you would earn a total of  0.00  from holding Arts Way Manufacturing Co or generate 0.0% return on investment over 90 days.

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

Arts Way Manufacturing Co  vs.  Deere Company

Arts Way Manufacturing

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Arts Way Manufacturing Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Arts Way showed solid returns over the last few months and may actually be approaching a breakup point.

Deere Company

Risk-Adjusted Performance

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 Arts Way and Deere

The main advantage of trading using opposite Arts Way and Deere positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arts Way 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 Arts Way Manufacturing Co 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.