Correlation Between Deere and Metso Outotec

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

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

Diversification Opportunities for Deere and Metso Outotec

-0.39

Correlation Coefficient

Deere  Metso Outotec

Very good diversification

The 3 months correlation between Deere and Metso is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and Metso Outotec Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metso Outotec Oyj 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 Metso Outotec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metso Outotec Oyj has no effect on the direction of Deere i.e., Deere and Metso Outotec go up and down completely randomly.

Pair Corralation between Deere and Metso Outotec

Assuming the 90 days trading horizon Deere Company is expected to under-perform the Metso Outotec. But the stock apears to be less risky and, when comparing its historical volatility, Deere Company is 1.21 times less risky than Metso Outotec. The stock trades about -0.02 of its potential returns per unit of risk. The Metso Outotec Oyj is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  803.00  in Metso Outotec Oyj on September 23, 2024 and sell it today you would earn a total of  83.00  from holding Metso Outotec Oyj or generate 10.34% return on investment over 90 days.

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

Deere Company  vs.  Metso Outotec Oyj

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. In spite of comparatively unsteady basic indicators, Deere unveiled solid returns over the last few months and may actually be approaching a breakup point.

Metso Outotec Oyj

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Metso Outotec Oyj are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Metso Outotec is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Deere and Metso Outotec

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

The idea behind Deere Company and Metso Outotec Oyj 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.