Correlation Between Adient PLC and Allison Transmission

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

By analyzing existing cross correlation between Adient PLC and Allison Transmission Holdings, you can compare the effects of market volatilities on Adient PLC and Allison Transmission 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 Adient PLC with a short position of Allison Transmission. Check out your portfolio center. Please also check ongoing floating volatility patterns of Adient PLC and Allison Transmission.

Diversification Opportunities for Adient PLC and Allison Transmission

-0.64

Correlation Coefficient

Adient PLC  Allison Transmission

Excellent diversification

The 3 months correlation between Adient and Allison is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Adient PLC and Allison Transmission Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allison Transmission and Adient PLC 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 Adient PLC are associated (or correlated) with Allison Transmission. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allison Transmission has no effect on the direction of Adient PLC i.e., Adient PLC and Allison Transmission go up and down completely randomly.

Pair Corralation between Adient PLC and Allison Transmission

Given the investment horizon of 90 days Adient PLC is expected to under-perform the Allison Transmission. In addition to that, Adient PLC is 1.47 times more volatile than Allison Transmission Holdings. It trades about -0.07 of its total potential returns per unit of risk. Allison Transmission Holdings is currently generating about 0.28 per unit of volatility. If you would invest  8,889  in Allison Transmission Holdings on August 31, 2024 and sell it today you would earn a total of  2,969  from holding Allison Transmission Holdings or generate 33.4% return on investment over 90 days.

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

Adient PLC  vs.  Allison Transmission Holdings

Adient PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Adient PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Allison Transmission

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Allison Transmission Holdings are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Allison Transmission displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Adient PLC and Allison Transmission

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

The idea behind Adient PLC and Allison Transmission Holdings 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.