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

0.36

Correlation Coefficient

AGCO  Caterpillar

Weak diversification

The 3 months correlation between AGCO and Caterpillar is 0.36. 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 generate 0.73 times more return on investment than Caterpillar. However, AGCO Corporation is 1.38 times less risky than Caterpillar. It trades about -0.22 of its potential returns per unit of risk. Caterpillar is currently generating about -0.18 per unit of risk. If you would invest  12,151  in AGCO Corporation on February 2, 2024 and sell it today you would lose (937.00) from holding AGCO Corporation or give up 7.71% of portfolio value over 90 days.

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

AGCO Corp.  vs.  Caterpillar

AGCO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AGCO Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Caterpillar

Risk-Adjusted Performance

4 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Caterpillar is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

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.

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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.