Correlation Between Deere and Astec Industries

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

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

Diversification Opportunities for Deere and Astec Industries

0.63

Correlation Coefficient

Deere  Astec Industries

Poor diversification

The 3 months correlation between Deere and Astec is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and Astec Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Astec Industries 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 Astec Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Astec Industries has no effect on the direction of Deere i.e., Deere and Astec Industries go up and down completely randomly.

Pair Corralation between Deere and Astec Industries

Allowing for the 90-day total investment horizon Deere Company is expected to generate 0.53 times more return on investment than Astec Industries. However, Deere Company is 1.9 times less risky than Astec Industries. It trades about 0.05 of its potential returns per unit of risk. Astec Industries is currently generating about 0.0 per unit of risk. If you would invest  36,779  in Deere Company on September 17, 2024 and sell it today you would earn a total of  7,265  from holding Deere Company or generate 19.75% 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.  Astec Industries

Deere Company

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Deere Company are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Deere may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Astec Industries

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Astec Industries are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent basic indicators, Astec Industries exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Deere and Astec Industries

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

The idea behind Deere Company and Astec Industries 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.