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

0.37

Correlation Coefficient

PACCAR  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 generate 0.88 times more return on investment than Deere. However, PACCAR Inc is 1.14 times less risky than Deere. It trades about 0.15 of its potential returns per unit of risk. Deere Company is currently generating about 0.02 per unit of risk. If you would invest  7,149  in PACCAR Inc on January 26, 2024 and sell it today you would earn a total of  4,225  from holding PACCAR Inc or generate 59.1% return on investment 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

PACCAR Inc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PACCAR Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, PACCAR may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Deere Company

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Deere Company are ranked lower than 1 (%) 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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

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.

The idea behind PACCAR Inc 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.