Correlation Between Deere and BURLINGTON STORES

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

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

Diversification Opportunities for Deere and BURLINGTON STORES

0.85

Correlation Coefficient

Deere  BURLINGTON STORES

Very poor diversification

The 3 months correlation between Deere and BURLINGTON is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and BURLINGTON STORES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BURLINGTON STORES and Deere 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 Deere Company are associated (or correlated) with BURLINGTON STORES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BURLINGTON STORES has no effect on the direction of Deere i.e., Deere and BURLINGTON STORES go up and down completely randomly.

Pair Corralation between Deere and BURLINGTON STORES

Assuming the 90 days horizon Deere is expected to generate 1.14 times less return on investment than BURLINGTON STORES. In addition to that, Deere is 1.13 times more volatile than BURLINGTON STORES. It trades about 0.14 of its total potential returns per unit of risk. BURLINGTON STORES is currently generating about 0.18 per unit of volatility. If you would invest  23,200  in BURLINGTON STORES on October 25, 2024 and sell it today you would earn a total of  4,600  from holding BURLINGTON STORES or generate 19.83% return on investment over 90 days.

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

Deere Company  vs.  BURLINGTON STORES

Deere Company

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Deere Company are ranked lower than 10 (%) 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.

BURLINGTON STORES

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BURLINGTON STORES are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain forward indicators, BURLINGTON STORES exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Deere and BURLINGTON STORES

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

The idea behind Deere Company and BURLINGTON STORES 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.