Correlation Between Deere and KUBOTA CORP

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

By analyzing existing cross correlation between Deere Company and KUBOTA P ADR20, you can compare the effects of market volatilities on Deere and KUBOTA CORP 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 KUBOTA CORP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deere and KUBOTA CORP.

Diversification Opportunities for Deere and KUBOTA CORP

-0.59

Correlation Coefficient

Deere  KUBOTA CORP

Excellent diversification

The 3 months correlation between Deere and KUBOTA is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and KUBOTA P ADR20 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KUBOTA P ADR20 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 KUBOTA CORP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KUBOTA P ADR20 has no effect on the direction of Deere i.e., Deere and KUBOTA CORP go up and down completely randomly.

Pair Corralation between Deere and KUBOTA CORP

Assuming the 90 days horizon Deere Company is expected to generate 1.06 times more return on investment than KUBOTA CORP. However, Deere is 1.06 times more volatile than KUBOTA P ADR20. It trades about 0.19 of its potential returns per unit of risk. KUBOTA P ADR20 is currently generating about -0.07 per unit of risk. If you would invest  35,882  in Deere Company on September 4, 2024 and sell it today you would earn a total of  8,363  from holding Deere Company or generate 23.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Deere Company  vs.  KUBOTA P ADR20

Deere Company

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Deere Company are ranked lower than 15 (%) 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.

KUBOTA P ADR20

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KUBOTA P ADR20 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Deere and KUBOTA CORP

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

The idea behind Deere Company and KUBOTA P ADR20 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.