Correlation Between Allison Transmission and Aptiv PLC

Can any of the company-specific risk be diversified away by investing in both Allison Transmission and Aptiv 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 Aptiv 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 Aptiv PLC, you can compare the effects of market volatilities on Allison Transmission and Aptiv 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 Aptiv PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Allison Transmission and Aptiv PLC.

Diversification Opportunities for Allison Transmission and Aptiv PLC

-0.47

Correlation Coefficient

Allison Transmission  Aptiv PLC

Very good diversification

The 3 months correlation between Allison and Aptiv is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Allison Transmission Holdings and Aptiv PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aptiv 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 Aptiv PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aptiv PLC has no effect on the direction of Allison Transmission i.e., Allison Transmission and Aptiv PLC go up and down completely randomly.

Pair Corralation between Allison Transmission and Aptiv PLC

Given the investment horizon of 90 days Allison Transmission Holdings is expected to under-perform the Aptiv PLC. In addition to that, Allison Transmission is 1.41 times more volatile than Aptiv PLC. It trades about -0.07 of its total potential returns per unit of risk. Aptiv PLC is currently generating about 0.04 per unit of volatility. If you would invest  6,011  in Aptiv PLC on December 29, 2024 and sell it today you would earn a total of  214.00  from holding Aptiv PLC or generate 3.56% return on investment over 90 days.

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

Allison Transmission Holdings  vs.  Aptiv 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.

Aptiv PLC

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Aptiv PLC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Aptiv PLC is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Allison Transmission and Aptiv PLC

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

The idea behind Allison Transmission Holdings and Aptiv 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.