Correlation Between Epiroc AB and AGCO

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

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

Diversification Opportunities for Epiroc AB and AGCO

0.09

Correlation Coefficient

Epiroc AB  AGCO

Significant diversification

The 3 months correlation between Epiroc and AGCO is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Epiroc AB and AGCO Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AGCO and Epiroc AB 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 Epiroc AB are associated (or correlated) with AGCO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AGCO has no effect on the direction of Epiroc AB i.e., Epiroc AB and AGCO go up and down completely randomly.

Pair Corralation between Epiroc AB and AGCO

Assuming the 90 days horizon Epiroc AB is expected to generate 1.75 times less return on investment than AGCO. In addition to that, Epiroc AB is 1.03 times more volatile than AGCO Corporation. It trades about 0.04 of its total potential returns per unit of risk. AGCO Corporation is currently generating about 0.08 per unit of volatility. If you would invest  11,539  in AGCO Corporation on January 17, 2024 and sell it today you would earn a total of  265.00  from holding AGCO Corporation or generate 2.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Epiroc AB  vs.  AGCO Corp.

Epiroc AB

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Epiroc AB are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile forward-looking signals, Epiroc AB may actually be approaching a critical reversion point that can send shares even higher in May 2024.

AGCO

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AGCO Corporation are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, AGCO is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Epiroc AB and AGCO

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

The idea behind Epiroc AB and AGCO Corporation 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.