Correlation Between Deere and Hitachi Construction

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

By analyzing existing cross correlation between Deere Company and Hitachi Construction Machinery, you can compare the effects of market volatilities on Deere and Hitachi Construction 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 Hitachi Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deere and Hitachi Construction.

Diversification Opportunities for Deere and Hitachi Construction

0.43

Correlation Coefficient

Deere  Hitachi Construction

Very weak diversification

The 3 months correlation between Deere and Hitachi is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and Hitachi Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hitachi Construction 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 Hitachi Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hitachi Construction has no effect on the direction of Deere i.e., Deere and Hitachi Construction go up and down completely randomly.

Pair Corralation between Deere and Hitachi Construction

Assuming the 90 days horizon Deere is expected to generate 2.1 times less return on investment than Hitachi Construction. But when comparing it to its historical volatility, Deere Company is 1.03 times less risky than Hitachi Construction. It trades about 0.08 of its potential returns per unit of risk. Hitachi Construction Machinery is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,060  in Hitachi Construction Machinery on December 29, 2024 and sell it today you would earn a total of  460.00  from holding Hitachi Construction Machinery or generate 22.33% return on investment over 90 days.

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

Deere Company  vs.  Hitachi Construction Machinery

Deere Company

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Deere Company are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Deere may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Hitachi Construction

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hitachi Construction Machinery are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Hitachi Construction reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Deere and Hitachi Construction

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

The idea behind Deere Company and Hitachi Construction Machinery 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.