Correlation Between AGCO and Water Ways

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

By analyzing existing cross correlation between AGCO Corporation and Water Ways Technologies, you can compare the effects of market volatilities on AGCO and Water Ways 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 Water Ways. Check out your portfolio center. Please also check ongoing floating volatility patterns of AGCO and Water Ways.

Diversification Opportunities for AGCO and Water Ways

0.15

Correlation Coefficient

AGCO  Water Ways

Average diversification

The 3 months correlation between AGCO and Water is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding AGCO Corp. and Water Ways Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Water Ways Technologies 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 Water Ways. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Water Ways Technologies has no effect on the direction of AGCO i.e., AGCO and Water Ways go up and down completely randomly.

Pair Corralation between AGCO and Water Ways

Given the investment horizon of 90 days AGCO is expected to generate 61.76 times less return on investment than Water Ways. But when comparing it to its historical volatility, AGCO Corporation is 64.82 times less risky than Water Ways. It trades about 0.12 of its potential returns per unit of risk. Water Ways Technologies is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  0.80  in Water Ways Technologies on September 3, 2024 and sell it today you would earn a total of  0.20  from holding Water Ways Technologies or generate 25.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

AGCO Corp.  vs.  Water Ways Technologies

AGCO

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AGCO Corporation are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile fundamental indicators, AGCO displayed solid returns over the last few months and may actually be approaching a breakup point.

Water Ways Technologies

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Water Ways Technologies are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, Water Ways reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AGCO and Water Ways

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

The idea behind AGCO Corporation and Water Ways Technologies 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.