Correlation Between Brookfield Business and Allison Transmission

Can any of the company-specific risk be diversified away by investing in both Brookfield Business and Allison Transmission 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 Brookfield Business and Allison Transmission into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Brookfield Business Partners and Allison Transmission Holdings, you can compare the effects of market volatilities on Brookfield Business and Allison Transmission 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 Brookfield Business with a short position of Allison Transmission. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brookfield Business and Allison Transmission.

Diversification Opportunities for Brookfield Business and Allison Transmission

-0.19

Correlation Coefficient

Brookfield Business  Allison Transmission

Good diversification

The 3 months correlation between Brookfield and Allison is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Brookfield Business Partners and Allison Transmission Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allison Transmission and Brookfield Business 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 Brookfield Business Partners are associated (or correlated) with Allison Transmission. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allison Transmission has no effect on the direction of Brookfield Business i.e., Brookfield Business and Allison Transmission go up and down completely randomly.

Pair Corralation between Brookfield Business and Allison Transmission

Considering the 90-day investment horizon Brookfield Business Partners is expected to generate 0.88 times more return on investment than Allison Transmission. However, Brookfield Business Partners is 1.14 times less risky than Allison Transmission. It trades about -0.03 of its potential returns per unit of risk. Allison Transmission Holdings is currently generating about -0.11 per unit of risk. If you would invest  2,644  in Brookfield Business Partners on November 29, 2024 and sell it today you would lose (120.00) from holding Brookfield Business Partners or give up 4.54% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Brookfield Business Partners  vs.  Allison Transmission Holdings

Brookfield Business

Risk-Adjusted Performance

Very Weak

Over the last 90 days Brookfield Business Partners has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, Brookfield Business is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

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 March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Brookfield Business and Allison Transmission

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

The idea behind Brookfield Business Partners and Allison Transmission Holdings 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .