Correlation Between Deere and Hydrofarm Holdings

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

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

Diversification Opportunities for Deere and Hydrofarm Holdings

-0.41

Correlation Coefficient

Deere  Hydrofarm Holdings

Very good diversification

The 3 months correlation between Deere and Hydrofarm is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and Hydrofarm Holdings Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hydrofarm Holdings 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 Hydrofarm Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hydrofarm Holdings has no effect on the direction of Deere i.e., Deere and Hydrofarm Holdings go up and down completely randomly.

Pair Corralation between Deere and Hydrofarm Holdings

Allowing for the 90-day total investment horizon Deere Company is expected to generate 0.33 times more return on investment than Hydrofarm Holdings. However, Deere Company is 3.07 times less risky than Hydrofarm Holdings. It trades about 0.12 of its potential returns per unit of risk. Hydrofarm Holdings Group is currently generating about -0.28 per unit of risk. If you would invest  42,302  in Deere Company on December 29, 2024 and sell it today you would earn a total of  5,670  from holding Deere Company or generate 13.4% 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.  Hydrofarm Holdings Group

Deere Company

Risk-Adjusted Performance

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 exhibited solid returns over the last few months and may actually be approaching a breakup point.

Hydrofarm Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hydrofarm Holdings Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Deere and Hydrofarm Holdings

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

The idea behind Deere Company and Hydrofarm Holdings 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.