Correlation Between Allison Transmission and Fox Factory

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

Diversification Opportunities for Allison Transmission and Fox Factory

0.62

Correlation Coefficient

Allison Transmission  Fox Factory

Poor diversification

The 3 months correlation between Allison and Fox is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Allison Transmission Holdings and Fox Factory Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fox Factory Holding 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 Fox Factory. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fox Factory Holding has no effect on the direction of Allison Transmission i.e., Allison Transmission and Fox Factory go up and down completely randomly.

Pair Corralation between Allison Transmission and Fox Factory

Given the investment horizon of 90 days Allison Transmission Holdings is expected to generate 0.92 times more return on investment than Fox Factory. However, Allison Transmission Holdings is 1.09 times less risky than Fox Factory. It trades about -0.07 of its potential returns per unit of risk. Fox Factory Holding is currently generating about -0.08 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.  Fox Factory Holding

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.

Fox Factory Holding

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fox Factory Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Allison Transmission and Fox Factory

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

The idea behind Allison Transmission Holdings and Fox Factory Holding 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.