Correlation Between CTS and Allison

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

By analyzing existing cross correlation between CTS Corporation and Allison Transmission 5875, you can compare the effects of market volatilities on CTS and Allison 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 CTS with a short position of Allison. Check out your portfolio center. Please also check ongoing floating volatility patterns of CTS and Allison.

Diversification Opportunities for CTS and Allison

-0.04

Correlation Coefficient

CTS  Allison

Good diversification

The 3 months correlation between CTS and Allison is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding CTS Corp. and Allison Transmission 5875 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allison Transmission 5875 and CTS 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 CTS Corporation are associated (or correlated) with Allison. 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 5875 has no effect on the direction of CTS i.e., CTS and Allison go up and down completely randomly.

Pair Corralation between CTS and Allison

Considering the 90-day investment horizon CTS Corporation is expected to generate 2.31 times more return on investment than Allison. However, CTS is 2.31 times more volatile than Allison Transmission 5875. It trades about 0.04 of its potential returns per unit of risk. Allison Transmission 5875 is currently generating about -0.09 per unit of risk. If you would invest  4,897  in CTS Corporation on September 29, 2024 and sell it today you would earn a total of  415.00  from holding CTS Corporation or generate 8.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	88.89%
Values	Daily Returns

CTS Corp.  vs.  Allison Transmission 5875

CTS Corporation

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CTS Corporation are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, CTS may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Allison Transmission 5875

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Allison Transmission 5875 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for Allison Transmission 5875 investors.

Pair Trading with CTS and Allison

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

The idea behind CTS Corporation and Allison Transmission 5875 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.