Correlation Between Aldel Financial and Allison

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

By analyzing existing cross correlation between Aldel Financial II and Allison Transmission 5875, you can compare the effects of market volatilities on Aldel Financial and Allison 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 Aldel Financial with a short position of Allison. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aldel Financial and Allison.

Diversification Opportunities for Aldel Financial and Allison

0.33

Correlation Coefficient

Aldel Financial  Allison

Weak diversification

The 3 months correlation between Aldel and Allison is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Aldel Financial II and Allison Transmission 5875 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allison Transmission 5875 and Aldel Financial 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 Aldel Financial II are associated (or correlated) with Allison. 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 5875 has no effect on the direction of Aldel Financial i.e., Aldel Financial and Allison go up and down completely randomly.

Pair Corralation between Aldel Financial and Allison

Given the investment horizon of 90 days Aldel Financial is expected to generate 211.11 times less return on investment than Allison. But when comparing it to its historical volatility, Aldel Financial II is 544.42 times less risky than Allison. It trades about 0.15 of its potential returns per unit of risk. Allison Transmission 5875 is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  9,625  in Allison Transmission 5875 on October 10, 2024 and sell it today you would lose (675.00) from holding Allison Transmission 5875 or give up 7.01% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	3.58%
Values	Daily Returns

Aldel Financial II  vs.  Allison Transmission 5875

Aldel Financial II

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aldel Financial II are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, Aldel Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Allison Transmission 5875

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Allison Transmission 5875 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for Allison Transmission 5875 investors.

Pair Trading with Aldel Financial and Allison

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

The idea behind Aldel Financial II and Allison Transmission 5875 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.