Correlation Between Costco Wholesale and Deere

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

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

Diversification Opportunities for Costco Wholesale and Deere

0.79

Correlation Coefficient

Costco Wholesale  Deere

Poor diversification

The 3 months correlation between Costco and Deere is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and Deere Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deere Company and Costco 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 Costco Wholesale Corp 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 Costco Wholesale i.e., Costco Wholesale and Deere go up and down completely randomly.

Pair Corralation between Costco Wholesale and Deere

Assuming the 90 days trading horizon Costco Wholesale is expected to generate 14.07 times less return on investment than Deere. But when comparing it to its historical volatility, Costco Wholesale Corp is 1.96 times less risky than Deere. It trades about 0.04 of its potential returns per unit of risk. Deere Company is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  41,371  in Deere Company on October 26, 2024 and sell it today you would earn a total of  3,889  from holding Deere Company or generate 9.4% return on investment over 90 days.

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

Costco Wholesale Corp  vs.  Deere Company

Costco Wholesale Corp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Costco Wholesale may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Deere Company

Risk-Adjusted Performance

12 of 100

Good

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 Costco Wholesale and Deere

The main advantage of trading using opposite Costco Wholesale and Deere positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Costco 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 Costco Wholesale Corp 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.