Correlation Between AGCO and Hitachi Construction

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

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

Diversification Opportunities for AGCO and Hitachi Construction

-0.05

Correlation Coefficient

AGCO  Hitachi Construction

Good diversification

The 3 months correlation between AGCO and Hitachi is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding AGCO Corp. and Hitachi Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hitachi Construction 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 Hitachi Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hitachi Construction has no effect on the direction of AGCO i.e., AGCO and Hitachi Construction go up and down completely randomly.

Pair Corralation between AGCO and Hitachi Construction

Given the investment horizon of 90 days AGCO is expected to generate 3.48 times less return on investment than Hitachi Construction. In addition to that, AGCO is 1.24 times more volatile than Hitachi Construction Machinery. It trades about 0.04 of its total potential returns per unit of risk. Hitachi Construction Machinery is currently generating about 0.18 per unit of volatility. If you would invest  4,389  in Hitachi Construction Machinery on December 27, 2024 and sell it today you would earn a total of  1,059  from holding Hitachi Construction Machinery or generate 24.13% return on investment over 90 days.

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

AGCO Corp.  vs.  Hitachi Construction Machinery

AGCO

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AGCO Corporation are ranked lower than 3 (%) 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.

Hitachi Construction

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hitachi Construction Machinery are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Hitachi Construction showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AGCO and Hitachi Construction

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

The idea behind AGCO Corporation and Hitachi Construction Machinery 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.