Correlation Between AGCO and Deere
Can any of the company-specific risk be diversified away by investing in both AGCO 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 AGCO and Deere into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AGCO Corporation and Deere Company, you can compare the effects of market volatilities on AGCO 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 AGCO with a short position of Deere. Check out your portfolio center. Please also check ongoing floating volatility patterns of AGCO and Deere.
Diversification Opportunities for AGCO and Deere
Almost no diversification
The 3 months correlation between AGCO and Deere is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding AGCO Corp. and Deere Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deere Company 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 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 AGCO i.e., AGCO and Deere go up and down completely randomly.
Pair Corralation between AGCO and Deere
Given the investment horizon of 90 days AGCO Corporation is expected to generate 1.21 times more return on investment than Deere. However, AGCO is 1.21 times more volatile than Deere Company. It trades about 0.04 of its potential returns per unit of risk. Deere Company is currently generating about -0.02 per unit of risk. If you would invest 11,762 in AGCO Corporation on January 26, 2024 and sell it today you would earn a total of 107.00 from holding AGCO Corporation or generate 0.91% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Strong |
Accuracy | 100.0% |
Values | Daily Returns |
AGCO Corp. vs. Deere Company
Performance |
Timeline |
AGCO |
Deere Company |
AGCO and Deere Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with AGCO and Deere
The main advantage of trading using opposite AGCO and Deere positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AGCO 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 AGCO Corporation 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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