Correlation Between Deere and American Airlines

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

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

Diversification Opportunities for Deere and American Airlines

-0.52

Correlation Coefficient

Deere  American Airlines

Excellent diversification

The 3 months correlation between Deere and American is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines 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 American Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Airlines has no effect on the direction of Deere i.e., Deere and American Airlines go up and down completely randomly.

Pair Corralation between Deere and American Airlines

Allowing for the 90-day total investment horizon Deere Company is expected to generate 0.43 times more return on investment than American Airlines. However, Deere Company is 2.33 times less risky than American Airlines. It trades about -0.12 of its potential returns per unit of risk. American Airlines Group is currently generating about -0.2 per unit of risk. If you would invest  40,414  in Deere Company on February 1, 2024 and sell it today you would lose (1,273) from holding Deere Company or give up 3.15% of portfolio value over 90 days.

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

Deere Company  vs.  American Airlines Group

Deere Company

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Deere Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Deere is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

American Airlines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Airlines Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, American Airlines 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 American Airlines

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

The idea behind Deere Company and American Airlines 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.