Correlation Between Commercial Vehicle and Allison Transmission

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

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

Diversification Opportunities for Commercial Vehicle and Allison Transmission

0.65

Correlation Coefficient

Commercial Vehicle  Allison Transmission

Poor diversification

The 3 months correlation between Commercial and Allison is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Commercial Vehicle Group and Allison Transmission Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allison Transmission and Commercial Vehicle 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 Commercial Vehicle Group 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 Commercial Vehicle i.e., Commercial Vehicle and Allison Transmission go up and down completely randomly.

Pair Corralation between Commercial Vehicle and Allison Transmission

Given the investment horizon of 90 days Commercial Vehicle Group is expected to under-perform the Allison Transmission. In addition to that, Commercial Vehicle is 1.72 times more volatile than Allison Transmission Holdings. It trades about -0.24 of its total potential returns per unit of risk. Allison Transmission Holdings is currently generating about -0.07 per unit of volatility. If you would invest  10,774  in Allison Transmission Holdings on December 30, 2024 and sell it today you would lose (1,168) from holding Allison Transmission Holdings or give up 10.84% of portfolio value over 90 days.

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

Commercial Vehicle Group  vs.  Allison Transmission Holdings

Commercial Vehicle

Risk-Adjusted Performance

Very Weak

Over the last 90 days Commercial Vehicle Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

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.

Pair Trading with Commercial Vehicle and Allison Transmission

The main advantage of trading using opposite Commercial Vehicle and Allison Transmission positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commercial Vehicle 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 Commercial Vehicle Group 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.