Correlation Between Deere and VOLVO B

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

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

Diversification Opportunities for Deere and VOLVO B

0.8

Correlation Coefficient

Deere  VOLVO B

Very poor diversification

The 3 months correlation between Deere and VOLVO is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and VOLVO B UNSPADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VOLVO B UNSPADR 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 VOLVO B. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VOLVO B UNSPADR has no effect on the direction of Deere i.e., Deere and VOLVO B go up and down completely randomly.

Pair Corralation between Deere and VOLVO B

Assuming the 90 days trading horizon Deere is expected to generate 12.24 times less return on investment than VOLVO B. But when comparing it to its historical volatility, Deere Company is 1.75 times less risky than VOLVO B. It trades about 0.06 of its potential returns per unit of risk. VOLVO B UNSPADR is currently generating about 0.4 of returns per unit of risk over similar time horizon. If you would invest  2,500  in VOLVO B UNSPADR on November 27, 2024 and sell it today you would earn a total of  440.00  from holding VOLVO B UNSPADR or generate 17.6% 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.  VOLVO B UNSPADR

Deere Company

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Deere Company are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Deere may actually be approaching a critical reversion point that can send shares even higher in March 2025.

VOLVO B UNSPADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in VOLVO B UNSPADR are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, VOLVO B reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Deere and VOLVO B

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

The idea behind Deere Company and VOLVO B UNSPADR 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.