Correlation Between Deere and Alamo

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

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

Diversification Opportunities for Deere and Alamo

0.61

Correlation Coefficient

Deere  Alamo

Poor diversification

The 3 months correlation between Deere and Alamo is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and Alamo Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alamo Group 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 Alamo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alamo Group has no effect on the direction of Deere i.e., Deere and Alamo go up and down completely randomly.

Pair Corralation between Deere and Alamo

Allowing for the 90-day total investment horizon Deere Company is expected to generate 0.8 times more return on investment than Alamo. However, Deere Company is 1.25 times less risky than Alamo. It trades about 0.15 of its potential returns per unit of risk. Alamo Group is currently generating about 0.1 per unit of risk. If you would invest  38,564  in Deere Company on September 12, 2024 and sell it today you would earn a total of  6,239  from holding Deere Company or generate 16.18% return on investment over 90 days.

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

Deere Company  vs.  Alamo Group

Deere Company

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Deere Company are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Deere exhibited solid returns over the last few months and may actually be approaching a breakup point.

Alamo Group

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alamo Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak essential indicators, Alamo may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Deere and Alamo

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

The idea behind Deere Company and Alamo Group 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.