Correlation Between PACCAR and Deere
Can any of the company-specific risk be diversified away by investing in both PACCAR 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 PACCAR and Deere into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PACCAR Inc and Deere Company, you can compare the effects of market volatilities on PACCAR 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 PACCAR with a short position of Deere. Check out your portfolio center. Please also check ongoing floating volatility patterns of PACCAR and Deere.
Diversification Opportunities for PACCAR and Deere
Weak diversification
The 3 months correlation between PACCAR and Deere is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding PACCAR Inc and Deere Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deere Company and PACCAR 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 PACCAR Inc 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 PACCAR i.e., PACCAR and Deere go up and down completely randomly.
Pair Corralation between PACCAR and Deere
Given the investment horizon of 90 days PACCAR Inc is expected to under-perform the Deere. But the stock apears to be less risky and, when comparing its historical volatility, PACCAR Inc is 1.15 times less risky than Deere. The stock trades about -0.33 of its potential returns per unit of risk. The Deere Company is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest 39,705 in Deere Company on January 26, 2024 and sell it today you would lose (243.00) from holding Deere Company or give up 0.61% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
PACCAR Inc vs. Deere Company
Performance |
| Timeline |
| PACCAR Inc |
| Deere Company |
PACCAR and Deere Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PACCAR and Deere
The main advantage of trading using opposite PACCAR and Deere positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PACCAR 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.| PACCAR vs. Ideanomics | PACCAR vs. American Premium Water | PACCAR vs. Titan International | PACCAR vs. Deere Company |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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