Correlation Between Allison Transmission and Falcons Beyond

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

Diversification Opportunities for Allison Transmission and Falcons Beyond

-0.3

Correlation Coefficient

Allison Transmission  Falcons Beyond

Very good diversification

The 3 months correlation between Allison and Falcons is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Allison Transmission Holdings and Falcons Beyond Global, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Falcons Beyond Global, 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 Falcons Beyond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Falcons Beyond Global, has no effect on the direction of Allison Transmission i.e., Allison Transmission and Falcons Beyond go up and down completely randomly.

Pair Corralation between Allison Transmission and Falcons Beyond

Given the investment horizon of 90 days Allison Transmission Holdings is expected to under-perform the Falcons Beyond. But the stock apears to be less risky and, when comparing its historical volatility, Allison Transmission Holdings is 10.7 times less risky than Falcons Beyond. The stock trades about -0.07 of its potential returns per unit of risk. The Falcons Beyond Global, is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  78.00  in Falcons Beyond Global, on December 29, 2024 and sell it today you would earn a total of  22.00  from holding Falcons Beyond Global, or generate 28.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	73.77%
Values	Daily Returns

Allison Transmission Holdings  vs.  Falcons Beyond Global,

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.

Falcons Beyond Global,

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Falcons Beyond Global, are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting fundamental indicators, Falcons Beyond showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Allison Transmission and Falcons Beyond

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

The idea behind Allison Transmission Holdings and Falcons Beyond Global, 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.