Correlation Between Hitachi Construction and AGCO

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

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

Diversification Opportunities for Hitachi Construction and AGCO

-0.12

Correlation Coefficient

Hitachi Construction  AGCO

Good diversification

The 3 months correlation between Hitachi and AGCO is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Hitachi Construction Machinery and AGCO Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AGCO and Hitachi Construction 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 Hitachi Construction Machinery 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 Hitachi Construction i.e., Hitachi Construction and AGCO go up and down completely randomly.

Pair Corralation between Hitachi Construction and AGCO

Assuming the 90 days horizon Hitachi Construction is expected to generate 3.81 times less return on investment than AGCO. But when comparing it to its historical volatility, Hitachi Construction Machinery is 1.23 times less risky than AGCO. It trades about 0.04 of its potential returns per unit of risk. AGCO Corporation is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  7,964  in AGCO Corporation on September 13, 2024 and sell it today you would earn a total of  1,436  from holding AGCO Corporation or generate 18.03% return on investment over 90 days.

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

Hitachi Construction Machinery  vs.  AGCO Corp.

Hitachi Construction

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hitachi Construction Machinery are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Hitachi Construction is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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. Despite nearly unsteady basic indicators, AGCO reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hitachi Construction and AGCO

The main advantage of trading using opposite Hitachi Construction and AGCO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hitachi Construction 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 Hitachi Construction Machinery 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.