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

0.71

Correlation Coefficient

AGCO  Deere

Poor diversification

The 3 months correlation between AGCO and Deere is 0.71. 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 is expected to generate 1.53 times less return on investment than Deere. In addition to that, AGCO is 1.22 times more volatile than Deere Company. It trades about 0.1 of its total potential returns per unit of risk. Deere Company is currently generating about 0.18 per unit of volatility. If you would invest  38,438  in Deere Company on August 30, 2024 and sell it today you would earn a total of  7,666  from holding Deere Company or generate 19.94% 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.  Deere Company

AGCO

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AGCO Corporation are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, AGCO may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Deere Company

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Deere Company are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Deere exhibited solid returns over the last few months and may actually be approaching a breakup point.

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.

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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.