Correlation Between Deere and Newpark Resources
Can any of the company-specific risk be diversified away by investing in both Deere and Newpark Resources 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 Newpark Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Deere Company and Newpark Resources, you can compare the effects of market volatilities on Deere and Newpark Resources 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 Newpark Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deere and Newpark Resources.
Diversification Opportunities for Deere and Newpark Resources
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Deere and Newpark is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and Newpark Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newpark Resources 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 Newpark Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newpark Resources has no effect on the direction of Deere i.e., Deere and Newpark Resources go up and down completely randomly.
Pair Corralation between Deere and Newpark Resources
Allowing for the 90-day total investment horizon Deere is expected to generate 1.3 times less return on investment than Newpark Resources. But when comparing it to its historical volatility, Deere Company is 1.71 times less risky than Newpark Resources. It trades about 0.26 of its potential returns per unit of risk. Newpark Resources is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 627.00 in Newpark Resources on January 20, 2024 and sell it today you would earn a total of 101.00 from holding Newpark Resources or generate 16.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Deere Company vs. Newpark Resources
Performance |
| Timeline |
| Deere Company |
| Newpark Resources |
Deere and Newpark Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Deere and Newpark Resources
The main advantage of trading using opposite Deere and Newpark Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deere position performs unexpectedly, Newpark Resources 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 Newpark Resources will offset losses from the drop in Newpark Resources' long position.The idea behind Deere Company and Newpark Resources 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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