Correlation Between Allison Transmission and Bridgestone Corp

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

Diversification Opportunities for Allison Transmission and Bridgestone Corp

-0.83

Correlation Coefficient

Allison Transmission  Bridgestone Corp

Pay attention - limited upside

The 3 months correlation between Allison and Bridgestone is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding Allison Transmission Holdings and Bridgestone Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bridgestone Corp ADR 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 Bridgestone Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bridgestone Corp ADR has no effect on the direction of Allison Transmission i.e., Allison Transmission and Bridgestone Corp go up and down completely randomly.

Pair Corralation between Allison Transmission and Bridgestone Corp

Given the investment horizon of 90 days Allison Transmission Holdings is expected to under-perform the Bridgestone Corp. In addition to that, Allison Transmission is 1.7 times more volatile than Bridgestone Corp ADR. It trades about -0.07 of its total potential returns per unit of risk. Bridgestone Corp ADR is currently generating about 0.21 per unit of volatility. If you would invest  1,711  in Bridgestone Corp ADR on December 30, 2024 and sell it today you would earn a total of  311.00  from holding Bridgestone Corp ADR or generate 18.18% return on investment over 90 days.

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

Allison Transmission Holdings  vs.  Bridgestone Corp ADR

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.

Bridgestone Corp ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bridgestone Corp ADR are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Bridgestone Corp showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Allison Transmission and Bridgestone Corp

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

The idea behind Allison Transmission Holdings and Bridgestone Corp ADR 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.