Correlation Between Deere and Lion Electric

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

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

Diversification Opportunities for Deere and Lion Electric

-0.68

Correlation Coefficient

Deere  Lion Electric

Excellent diversification

The 3 months correlation between Deere and Lion is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and Lion Electric Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lion Electric Corp 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 Lion Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lion Electric Corp has no effect on the direction of Deere i.e., Deere and Lion Electric go up and down completely randomly.

Pair Corralation between Deere and Lion Electric

Allowing for the 90-day total investment horizon Deere is expected to generate 2.56 times less return on investment than Lion Electric. But when comparing it to its historical volatility, Deere Company is 7.72 times less risky than Lion Electric. It trades about 0.11 of its potential returns per unit of risk. Lion Electric Corp is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  29.00  in Lion Electric Corp on September 19, 2024 and sell it today you would lose (4.00) from holding Lion Electric Corp or give up 13.79% of portfolio value over 90 days.

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

Deere Company  vs.  Lion Electric Corp

Deere Company

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Deere Company are ranked lower than 3 (%) 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 recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Lion Electric Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lion Electric Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Deere and Lion Electric

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

The idea behind Deere Company and Lion Electric Corp 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.