Correlation Between Allison Transmission and ECARX Holdings

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

Diversification Opportunities for Allison Transmission and ECARX Holdings

-0.8

Correlation Coefficient

Allison Transmission  ECARX Holdings

Pay attention - limited upside

The 3 months correlation between Allison and ECARX is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Allison Transmission Holdings and ECARX Holdings Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECARX Holdings Class 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 ECARX Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECARX Holdings Class has no effect on the direction of Allison Transmission i.e., Allison Transmission and ECARX Holdings go up and down completely randomly.

Pair Corralation between Allison Transmission and ECARX Holdings

Given the investment horizon of 90 days Allison Transmission Holdings is expected to under-perform the ECARX Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Allison Transmission Holdings is 2.91 times less risky than ECARX Holdings. The stock trades about -0.05 of its potential returns per unit of risk. The ECARX Holdings Class is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  189.00  in ECARX Holdings Class on December 27, 2024 and sell it today you would earn a total of  53.00  from holding ECARX Holdings Class or generate 28.04% 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.  ECARX Holdings Class

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.

ECARX Holdings Class

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ECARX Holdings Class are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, ECARX Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Allison Transmission and ECARX Holdings

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

The idea behind Allison Transmission Holdings and ECARX Holdings Class 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.