Correlation Between Construction Partners and Deere

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

By analyzing existing cross correlation between Construction Partners and Deere Company, you can compare the effects of market volatilities on Construction Partners 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 Construction Partners with a short position of Deere. Check out your portfolio center. Please also check ongoing floating volatility patterns of Construction Partners and Deere.

Diversification Opportunities for Construction Partners and Deere

0.65

Correlation Coefficient

Construction Partners  Deere

Poor diversification

The 3 months correlation between Construction and Deere is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Construction Partners and Deere Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deere Company and Construction Partners 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 Construction Partners 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 Construction Partners i.e., Construction Partners and Deere go up and down completely randomly.

Pair Corralation between Construction Partners and Deere

Given the investment horizon of 90 days Construction Partners is expected to generate 1.43 times more return on investment than Deere. However, Construction Partners is 1.43 times more volatile than Deere Company. It trades about 0.37 of its potential returns per unit of risk. Deere Company is currently generating about 0.29 per unit of risk. If you would invest  7,873  in Construction Partners on September 1, 2024 and sell it today you would earn a total of  2,288  from holding Construction Partners or generate 29.06% return on investment over 90 days.

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

Construction Partners  vs.  Deere Company

Construction Partners

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Construction Partners are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Construction Partners exhibited solid returns over the last few months and may actually be approaching a breakup point.

Deere Company

Risk-Adjusted Performance

15 of 100

Good

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 unfluctuating technical and fundamental indicators, Deere exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Construction Partners and Deere

The main advantage of trading using opposite Construction Partners and Deere positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Construction Partners 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 Construction Partners 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.

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.