Correlation Between Deere and China Health

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

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

Diversification Opportunities for Deere and China Health

-0.4

Correlation Coefficient

Deere  China Health

Very good diversification

The 3 months correlation between Deere and China is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and China Health Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Health Management 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 China Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Health Management has no effect on the direction of Deere i.e., Deere and China Health go up and down completely randomly.

Pair Corralation between Deere and China Health

Allowing for the 90-day total investment horizon Deere Company is expected to generate 0.33 times more return on investment than China Health. However, Deere Company is 3.01 times less risky than China Health. It trades about 0.1 of its potential returns per unit of risk. China Health Management is currently generating about -0.1 per unit of risk. If you would invest  40,937  in Deere Company on September 16, 2024 and sell it today you would earn a total of  3,107  from holding Deere Company or generate 7.59% return on investment over 90 days.

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

Deere Company  vs.  China Health Management

Deere Company

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Deere Company are ranked lower than 9 (%) 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.

China Health Management

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Health Management has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Deere and China Health

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

The idea behind Deere Company and China Health Management 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.

Check out your portfolio center.

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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.