Correlation Between AGCO and Caterpillar
Can any of the company-specific risk be diversified away by investing in both AGCO and Caterpillar 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 Caterpillar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AGCO Corporation and Caterpillar, you can compare the effects of market volatilities on AGCO and Caterpillar 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 Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of AGCO and Caterpillar.
Diversification Opportunities for AGCO and Caterpillar
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between AGCO and Caterpillar is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding AGCO Corp. and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar 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 Caterpillar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caterpillar has no effect on the direction of AGCO i.e., AGCO and Caterpillar go up and down completely randomly.
Pair Corralation between AGCO and Caterpillar
Given the investment horizon of 90 days AGCO Corporation is expected to under-perform the Caterpillar. In addition to that, AGCO is 1.17 times more volatile than Caterpillar. It trades about -0.02 of its total potential returns per unit of risk. Caterpillar is currently generating about 0.03 per unit of volatility. If you would invest 38,573 in Caterpillar on August 24, 2024 and sell it today you would earn a total of 386.00 from holding Caterpillar or generate 1.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
AGCO Corp. vs. Caterpillar
Performance |
| Timeline |
| AGCO |
| Caterpillar |
AGCO and Caterpillar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AGCO and Caterpillar
The main advantage of trading using opposite AGCO and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AGCO position performs unexpectedly, Caterpillar 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 Caterpillar will offset losses from the drop in Caterpillar's long position.The idea behind AGCO Corporation and Caterpillar 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.| Caterpillar vs. AGCO Corporation | Caterpillar vs. Nikola Corp | Caterpillar vs. PACCAR Inc | Caterpillar vs. Deere Company |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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