Correlation Between Deere and Manitowoc

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

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

Diversification Opportunities for Deere and Manitowoc

0.13

Correlation Coefficient

Deere  Manitowoc

Average diversification

The 3 months correlation between Deere and Manitowoc is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and Manitowoc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Manitowoc 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 Manitowoc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Manitowoc has no effect on the direction of Deere i.e., Deere and Manitowoc go up and down completely randomly.

Pair Corralation between Deere and Manitowoc

Allowing for the 90-day total investment horizon Deere Company is expected to under-perform the Manitowoc. But the stock apears to be less risky and, when comparing its historical volatility, Deere Company is 1.53 times less risky than Manitowoc. The stock trades about -0.24 of its potential returns per unit of risk. The Manitowoc is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,245  in Manitowoc on March 5, 2024 and sell it today you would lose (2.00) from holding Manitowoc or give up 0.16% of portfolio value over 90 days.

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

Deere Company  vs.  Manitowoc

Deere Company

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Deere Company are ranked lower than 2 (%) 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.

Manitowoc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Manitowoc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Manitowoc is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Deere and Manitowoc

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

The idea behind Deere Company and Manitowoc 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.