Correlation Between Deere and Hydrofarm Holdings

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

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

Diversification Opportunities for Deere and Hydrofarm Holdings

0.61

Correlation Coefficient

Deere  Hydrofarm Holdings

Poor diversification

The 3 months correlation between Deere and Hydrofarm is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and Hydrofarm Holdings Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hydrofarm Holdings 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 Hydrofarm Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hydrofarm Holdings has no effect on the direction of Deere i.e., Deere and Hydrofarm Holdings go up and down completely randomly.

Pair Corralation between Deere and Hydrofarm Holdings

Allowing for the 90-day total investment horizon Deere is expected to generate 2.88 times less return on investment than Hydrofarm Holdings. But when comparing it to its historical volatility, Deere Company is 3.23 times less risky than Hydrofarm Holdings. It trades about 0.2 of its potential returns per unit of risk. Hydrofarm Holdings Group is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  48.00  in Hydrofarm Holdings Group on August 28, 2024 and sell it today you would earn a total of  33.00  from holding Hydrofarm Holdings Group or generate 68.75% 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.  Hydrofarm Holdings Group

Deere Company

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Deere Company are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical and fundamental indicators, Deere exhibited solid returns over the last few months and may actually be approaching a breakup point.

Hydrofarm Holdings

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hydrofarm Holdings Group are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady technical and fundamental indicators, Hydrofarm Holdings displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Deere and Hydrofarm Holdings

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

The idea behind Deere Company and Hydrofarm Holdings 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 Stocks Directory module to find actively traded stocks across global markets.