Correlation Between AGCO and Topbuild Corp

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

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

Diversification Opportunities for AGCO and Topbuild Corp

0.69

Correlation Coefficient

AGCO  Topbuild Corp

Poor diversification

The 3 months correlation between AGCO and Topbuild is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding AGCO Corp. and Topbuild Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Topbuild Corp 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 Topbuild Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Topbuild Corp has no effect on the direction of AGCO i.e., AGCO and Topbuild Corp go up and down completely randomly.

Pair Corralation between AGCO and Topbuild Corp

Given the investment horizon of 90 days AGCO Corporation is expected to generate 1.22 times more return on investment than Topbuild Corp. However, AGCO is 1.22 times more volatile than Topbuild Corp. It trades about 0.05 of its potential returns per unit of risk. Topbuild Corp is currently generating about 0.01 per unit of risk. If you would invest  9,281  in AGCO Corporation on December 28, 2024 and sell it today you would earn a total of  605.00  from holding AGCO Corporation or generate 6.52% 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.  Topbuild Corp

AGCO

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AGCO Corporation are ranked lower than 4 (%) 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 April 2025.

Topbuild Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Topbuild Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Topbuild Corp is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with AGCO and Topbuild Corp

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

The idea behind AGCO Corporation and Topbuild Corp 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.