Correlation Between AGCO and Cummins
Can any of the company-specific risk be diversified away by investing in both AGCO and Cummins 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 AGCO and Cummins into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AGCO Corporation and Cummins, you can compare the effects of market volatilities on AGCO and Cummins 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 AGCO with a short position of Cummins. Check out your portfolio center. Please also check ongoing floating volatility patterns of AGCO and Cummins.
Diversification Opportunities for AGCO and Cummins
Significant diversification
The 3 months correlation between AGCO and Cummins is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding AGCO Corp. and Cummins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cummins and AGCO 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 AGCO Corporation are associated (or correlated) with Cummins. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cummins has no effect on the direction of AGCO i.e., AGCO and Cummins go up and down completely randomly.
Pair Corralation between AGCO and Cummins
Given the investment horizon of 90 days AGCO is expected to generate 1.32 times less return on investment than Cummins. In addition to that, AGCO is 1.46 times more volatile than Cummins. It trades about 0.08 of its total potential returns per unit of risk. Cummins is currently generating about 0.16 per unit of volatility. If you would invest 28,612 in Cummins on January 17, 2024 and sell it today you would earn a total of 966.00 from holding Cummins or generate 3.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
AGCO Corp. vs. Cummins
Performance |
| Timeline |
| AGCO |
| Cummins |
AGCO and Cummins Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AGCO and Cummins
The main advantage of trading using opposite AGCO and Cummins positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AGCO position performs unexpectedly, Cummins 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 Cummins will offset losses from the drop in Cummins' long position.The idea behind AGCO Corporation and Cummins 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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