Correlation Between Allison Transmission and Adient PLC

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

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

Diversification Opportunities for Allison Transmission and Adient PLC

0.72

Correlation Coefficient

Allison Transmission  Adient PLC

Poor diversification

The 3 months correlation between Allison and Adient is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Allison Transmission Holdings and Adient PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adient PLC and Allison Transmission 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 Allison Transmission Holdings are associated (or correlated) with Adient PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adient PLC has no effect on the direction of Allison Transmission i.e., Allison Transmission and Adient PLC go up and down completely randomly.

Pair Corralation between Allison Transmission and Adient PLC

Given the investment horizon of 90 days Allison Transmission Holdings is expected to generate 0.77 times more return on investment than Adient PLC. However, Allison Transmission Holdings is 1.31 times less risky than Adient PLC. It trades about -0.07 of its potential returns per unit of risk. Adient PLC is currently generating about -0.11 per unit of risk. If you would invest  10,774  in Allison Transmission Holdings on December 29, 2024 and sell it today you would lose (1,168) from holding Allison Transmission Holdings or give up 10.84% of portfolio value over 90 days.

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

Allison Transmission Holdings  vs.  Adient PLC

Allison Transmission

Risk-Adjusted Performance

Very Weak

Over the last 90 days Allison Transmission Holdings 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 healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Adient PLC

Risk-Adjusted Performance

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 weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Allison Transmission and Adient PLC

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

The idea behind Allison Transmission Holdings and Adient PLC 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.