Correlation Between CEA Industries and AGCO

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

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

Diversification Opportunities for CEA Industries and AGCO

-0.29

Correlation Coefficient

CEA Industries  AGCO

Very good diversification

The 3 months correlation between CEA and AGCO is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding CEA Industries Warrant and AGCO Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AGCO and CEA Industries 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 CEA Industries Warrant are associated (or correlated) with AGCO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AGCO has no effect on the direction of CEA Industries i.e., CEA Industries and AGCO go up and down completely randomly.

Pair Corralation between CEA Industries and AGCO

Assuming the 90 days horizon CEA Industries Warrant is expected to generate 119.71 times more return on investment than AGCO. However, CEA Industries is 119.71 times more volatile than AGCO Corporation. It trades about 0.23 of its potential returns per unit of risk. AGCO Corporation is currently generating about 0.12 per unit of risk. If you would invest  1.77  in CEA Industries Warrant on September 1, 2024 and sell it today you would lose (0.98) from holding CEA Industries Warrant or give up 55.37% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	31.75%
Values	Daily Returns

CEA Industries Warrant  vs.  AGCO Corp.

CEA Industries Warrant

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days CEA Industries Warrant has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

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.

Pair Trading with CEA Industries and AGCO

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

The idea behind CEA Industries Warrant and AGCO Corporation 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.