Correlation Between Allison Transmission and NSK

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

Diversification Opportunities for Allison Transmission and NSK

0.37

Correlation Coefficient

Allison Transmission  NSK

Weak diversification

The 3 months correlation between Allison and NSK is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Allison Transmission Holdings and NSK Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NSK Ltd 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 NSK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NSK Ltd ADR has no effect on the direction of Allison Transmission i.e., Allison Transmission and NSK go up and down completely randomly.

Pair Corralation between Allison Transmission and NSK

Given the investment horizon of 90 days Allison Transmission Holdings is expected to under-perform the NSK. But the stock apears to be less risky and, when comparing its historical volatility, Allison Transmission Holdings is 1.46 times less risky than NSK. The stock trades about -0.09 of its potential returns per unit of risk. The NSK Ltd ADR is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  889.00  in NSK Ltd ADR on December 1, 2024 and sell it today you would lose (42.00) from holding NSK Ltd ADR or give up 4.72% 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.  NSK Ltd 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 weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

NSK Ltd ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days NSK Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking signals, NSK is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Allison Transmission and NSK

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

The idea behind Allison Transmission Holdings and NSK Ltd 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.