Correlation Between Dana and Allison Transmission

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

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

Diversification Opportunities for Dana and Allison Transmission

-0.1

Correlation Coefficient

Dana  Allison Transmission

Good diversification

The 3 months correlation between Dana and Allison is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Dana Inc and Allison Transmission Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allison Transmission and Dana 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 Dana Inc 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 Dana i.e., Dana and Allison Transmission go up and down completely randomly.

Pair Corralation between Dana and Allison Transmission

Considering the 90-day investment horizon Dana Inc is expected to generate 1.41 times more return on investment than Allison Transmission. However, Dana is 1.41 times more volatile than Allison Transmission Holdings. It trades about 0.11 of its potential returns per unit of risk. Allison Transmission Holdings is currently generating about -0.05 per unit of risk. If you would invest  1,139  in Dana Inc on December 28, 2024 and sell it today you would earn a total of  236.00  from holding Dana Inc or generate 20.72% return on investment over 90 days.

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

Dana Inc  vs.  Allison Transmission Holdings

Dana Inc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dana Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Dana displayed solid returns over the last few months and may actually be approaching a breakup point.

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 Dana and Allison Transmission

The main advantage of trading using opposite Dana and Allison Transmission positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dana 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 Dana Inc 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.