Correlation Between Deere and Solitron Devices

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

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

Diversification Opportunities for Deere and Solitron Devices

-0.35

Correlation Coefficient

Deere  Solitron Devices

Very good diversification

The 3 months correlation between Deere and Solitron is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and Solitron Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solitron Devices 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 Solitron Devices. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solitron Devices has no effect on the direction of Deere i.e., Deere and Solitron Devices go up and down completely randomly.

Pair Corralation between Deere and Solitron Devices

Allowing for the 90-day total investment horizon Deere Company is expected to generate 0.66 times more return on investment than Solitron Devices. However, Deere Company is 1.52 times less risky than Solitron Devices. It trades about 0.11 of its potential returns per unit of risk. Solitron Devices is currently generating about -0.01 per unit of risk. If you would invest  43,218  in Deere Company on December 25, 2024 and sell it today you would earn a total of  4,778  from holding Deere Company or generate 11.06% return on investment over 90 days.

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

Deere Company  vs.  Solitron Devices

Deere Company

Risk-Adjusted Performance

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 April 2025.

Solitron Devices

Risk-Adjusted Performance

Very Weak

Over the last 90 days Solitron Devices has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Solitron Devices is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Deere and Solitron Devices

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

The idea behind Deere Company and Solitron Devices 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.