Correlation Between Deere and Crane
Can any of the company-specific risk be diversified away by investing in both Deere and Crane 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 Crane into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Deere Company and Crane Company, you can compare the effects of market volatilities on Deere and Crane 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 Crane. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deere and Crane.
Diversification Opportunities for Deere and Crane
Very weak diversification
The 3 months correlation between Deere and Crane is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and Crane Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crane Company 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 Crane. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crane Company has no effect on the direction of Deere i.e., Deere and Crane go up and down completely randomly.
Pair Corralation between Deere and Crane
Allowing for the 90-day total investment horizon Deere Company is expected to under-perform the Crane. But the stock apears to be less risky and, when comparing its historical volatility, Deere Company is 1.42 times less risky than Crane. The stock trades about -0.01 of its potential returns per unit of risk. The Crane Company is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 13,424 in Crane Company on January 25, 2024 and sell it today you would earn a total of 748.00 from holding Crane Company or generate 5.57% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Deere Company vs. Crane Company
Performance |
| Timeline |
| Deere Company |
| Crane Company |
Deere and Crane Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Deere and Crane
The main advantage of trading using opposite Deere and Crane positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deere position performs unexpectedly, Crane 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 Crane will offset losses from the drop in Crane's long position.The idea behind Deere Company and Crane 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.Check out your portfolio center.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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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