Correlation Between Bridgestone Corp and Allison Transmission

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

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

Diversification Opportunities for Bridgestone Corp and Allison Transmission

-0.49

Correlation Coefficient

Bridgestone Corp  Allison Transmission

Very good diversification

The 3 months correlation between Bridgestone and Allison is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Bridgestone Corp ADR and Allison Transmission Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allison Transmission and Bridgestone Corp 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 Bridgestone Corp ADR 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 Bridgestone Corp i.e., Bridgestone Corp and Allison Transmission go up and down completely randomly.

Pair Corralation between Bridgestone Corp and Allison Transmission

Assuming the 90 days horizon Bridgestone Corp ADR is expected to under-perform the Allison Transmission. But the pink sheet apears to be less risky and, when comparing its historical volatility, Bridgestone Corp ADR is 1.77 times less risky than Allison Transmission. The pink sheet trades about -0.15 of its potential returns per unit of risk. The Allison Transmission Holdings is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  9,902  in Allison Transmission Holdings on October 20, 2024 and sell it today you would earn a total of  2,049  from holding Allison Transmission Holdings or generate 20.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Bridgestone Corp ADR  vs.  Allison Transmission Holdings

Bridgestone Corp ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bridgestone Corp ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Allison Transmission

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Allison Transmission Holdings are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Allison Transmission displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bridgestone Corp and Allison Transmission

The main advantage of trading using opposite Bridgestone Corp and Allison Transmission positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bridgestone Corp 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 Bridgestone Corp ADR 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.