Correlation Between Deere and AGCO
Can any of the company-specific risk be diversified away by investing in both Deere 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 Deere and AGCO into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Deere Company and AGCO Corporation, you can compare the effects of market volatilities on Deere 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 Deere with a short position of AGCO. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deere and AGCO.
Diversification Opportunities for Deere and AGCO
Poor diversification
The 3 months correlation between Deere and AGCO is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company and AGCO Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AGCO and Deere 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 Deere Company 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 Deere i.e., Deere and AGCO go up and down completely randomly.
Pair Corralation between Deere and AGCO
Assuming the 90 days horizon Deere Company is expected to generate 0.83 times more return on investment than AGCO. However, Deere Company is 1.21 times less risky than AGCO. It trades about 0.3 of its potential returns per unit of risk. AGCO Corporation is currently generating about 0.08 per unit of risk. If you would invest 37,335 in Deere Company on September 1, 2024 and sell it today you would earn a total of 6,745 from holding Deere Company or generate 18.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Deere Company vs. AGCO Corp.
Performance |
| Timeline |
| Deere Company |
| AGCO |
Deere and AGCO Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Deere and AGCO
The main advantage of trading using opposite Deere and AGCO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deere 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 Deere Company 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.| AGCO vs. GRIFFIN MINING LTD | AGCO vs. SERI INDUSTRIAL EO | AGCO vs. TELES Informationstechnologien AG | AGCO vs. Public Storage |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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