Correlation Between AGCO and CEA Industries

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

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

Diversification Opportunities for AGCO and CEA Industries

-0.11

Correlation Coefficient

AGCO  CEA Industries

Good diversification

The 3 months correlation between AGCO and CEA is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding AGCO Corp. and CEA Industries Warrant in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CEA Industries Warrant 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 CEA Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CEA Industries Warrant has no effect on the direction of AGCO i.e., AGCO and CEA Industries go up and down completely randomly.

Pair Corralation between AGCO and CEA Industries

Given the investment horizon of 90 days AGCO Corporation is expected to under-perform the CEA Industries. But the stock apears to be less risky and, when comparing its historical volatility, AGCO Corporation is 15.38 times less risky than CEA Industries. The stock trades about -0.05 of its potential returns per unit of risk. The CEA Industries Warrant is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  2.60  in CEA Industries Warrant on December 5, 2024 and sell it today you would lose (0.10) from holding CEA Industries Warrant or give up 3.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	86.44%
Values	Daily Returns

AGCO Corp.  vs.  CEA Industries Warrant

AGCO

Risk-Adjusted Performance

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.

CEA Industries Warrant

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CEA Industries Warrant are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady fundamental indicators, CEA Industries showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AGCO and CEA Industries

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

The idea behind AGCO Corporation and CEA Industries Warrant 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.