Correlation Between Deere and Track

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

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

Diversification Opportunities for Deere and Track

-0.13

Correlation Coefficient

Deere  Track

Good diversification

The 3 months correlation between Deere and Track is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and Track Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Track 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 Track. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Track Group has no effect on the direction of Deere i.e., Deere and Track go up and down completely randomly.

Pair Corralation between Deere and Track

Allowing for the 90-day total investment horizon Deere is expected to generate 4.18 times less return on investment than Track. But when comparing it to its historical volatility, Deere Company is 5.43 times less risky than Track. It trades about 0.01 of its potential returns per unit of risk. Track Group is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  45.00  in Track Group on September 13, 2024 and sell it today you would lose (34.00) from holding Track Group or give up 75.56% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Deere Company  vs.  Track Group

Deere Company

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Deere Company are ranked lower than 10 (%) 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.

Track Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Track Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Track is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Deere and Track

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

The idea behind Deere Company and Track 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.