Correlation Between Kubota and Deere

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

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

Diversification Opportunities for Kubota and Deere

-0.61

Correlation Coefficient

Kubota  Deere

Excellent diversification

The 3 months correlation between Kubota and Deere is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Kubota and Deere Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deere Company and Kubota 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 Kubota are associated (or correlated) with Deere. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deere Company has no effect on the direction of Kubota i.e., Kubota and Deere go up and down completely randomly.

Pair Corralation between Kubota and Deere

Assuming the 90 days trading horizon Kubota is expected to under-perform the Deere. But the stock apears to be less risky and, when comparing its historical volatility, Kubota is 1.19 times less risky than Deere. The stock trades about -0.07 of its potential returns per unit of risk. The Deere Company is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  35,399  in Deere Company on September 14, 2024 and sell it today you would earn a total of  7,126  from holding Deere Company or generate 20.13% return on investment over 90 days.

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

Kubota  vs.  Deere Company

Kubota

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kubota has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Deere Company

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Deere Company are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Deere reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kubota and Deere

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

The idea behind Kubota and Deere Company 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.