Correlation Between Deere and SPORTING

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

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

Diversification Opportunities for Deere and SPORTING

0.36

Correlation Coefficient

Deere  SPORTING

Weak diversification

The 3 months correlation between Deere and SPORTING is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and SPORTING in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPORTING 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 SPORTING. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPORTING has no effect on the direction of Deere i.e., Deere and SPORTING go up and down completely randomly.

Pair Corralation between Deere and SPORTING

Assuming the 90 days trading horizon Deere Company is expected to generate 1.31 times more return on investment than SPORTING. However, Deere is 1.31 times more volatile than SPORTING. It trades about 0.2 of its potential returns per unit of risk. SPORTING is currently generating about 0.13 per unit of risk. If you would invest  35,196  in Deere Company on September 13, 2024 and sell it today you would earn a total of  7,449  from holding Deere Company or generate 21.16% return on investment over 90 days.

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

Deere Company  vs.  SPORTING

Deere Company

Risk-Adjusted Performance

15 of 100

Good

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

SPORTING

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Deere and SPORTING

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

The idea behind Deere Company and SPORTING 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.