Correlation Between Allison Transmission and Monro Muffler

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

Diversification Opportunities for Allison Transmission and Monro Muffler

0.3

Correlation Coefficient

Allison Transmission  Monro Muffler

Weak diversification

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

Pair Corralation between Allison Transmission and Monro Muffler

Given the investment horizon of 90 days Allison Transmission Holdings is expected to generate 1.01 times more return on investment than Monro Muffler. However, Allison Transmission is 1.01 times more volatile than Monro Muffler Brake. It trades about -0.06 of its potential returns per unit of risk. Monro Muffler Brake is currently generating about -0.24 per unit of risk. If you would invest  11,598  in Allison Transmission Holdings on November 19, 2024 and sell it today you would lose (1,143) from holding Allison Transmission Holdings or give up 9.86% of portfolio value over 90 days.

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

Allison Transmission Holdings  vs.  Monro Muffler Brake

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.

Monro Muffler Brake

Risk-Adjusted Performance

Very Weak

Over the last 90 days Monro Muffler Brake has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Allison Transmission and Monro Muffler

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

The idea behind Allison Transmission Holdings and Monro Muffler Brake 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.