Correlation Between AGCO and Rev
Can any of the company-specific risk be diversified away by investing in both AGCO and Rev 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 Rev into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AGCO Corporation and Rev Group, you can compare the effects of market volatilities on AGCO and Rev 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 Rev. Check out your portfolio center. Please also check ongoing floating volatility patterns of AGCO and Rev.
Diversification Opportunities for AGCO and Rev
Good diversification
The 3 months correlation between AGCO and Rev is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding AGCO Corp. and Rev Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rev Group 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 Rev. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rev Group has no effect on the direction of AGCO i.e., AGCO and Rev go up and down completely randomly.
Pair Corralation between AGCO and Rev
Given the investment horizon of 90 days AGCO Corporation is expected to under-perform the Rev. But the stock apears to be less risky and, when comparing its historical volatility, AGCO Corporation is 1.65 times less risky than Rev. The stock trades about -0.02 of its potential returns per unit of risk. The Rev Group is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 1,357 in Rev Group on August 27, 2024 and sell it today you would earn a total of 1,734 from holding Rev Group or generate 127.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
AGCO Corp. vs. Rev Group
Performance |
| Timeline |
| AGCO |
| Rev Group |
AGCO and Rev Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AGCO and Rev
The main advantage of trading using opposite AGCO and Rev positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AGCO position performs unexpectedly, Rev 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 Rev will offset losses from the drop in Rev's long position.The idea behind AGCO Corporation and Rev Group 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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