Correlation Between Microsoft and Deere

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

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

Diversification Opportunities for Microsoft and Deere

-0.23

Correlation Coefficient

Microsoft  Deere

Very good diversification

The 3 months correlation between Microsoft and Deere is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Deere Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deere Company and Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Deere go up and down completely randomly.

Pair Corralation between Microsoft and Deere

Given the investment horizon of 90 days Microsoft is expected to under-perform the Deere. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.11 times less risky than Deere. The stock trades about -0.06 of its potential returns per unit of risk. The Deere Company is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  46,412  in Deere Company on November 28, 2024 and sell it today you would earn a total of  2,347  from holding Deere Company or generate 5.06% return on investment over 90 days.

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

Microsoft  vs.  Deere Company

Microsoft

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Deere Company

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Deere Company are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Deere is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Microsoft and Deere

The main advantage of trading using opposite Microsoft and Deere positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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 Microsoft 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.