Correlation Between Eastern and Allison

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

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

Diversification Opportunities for Eastern and Allison

0.1

Correlation Coefficient

Eastern  Allison

Average diversification

The 3 months correlation between Eastern and Allison is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Co 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 Eastern 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 Eastern Co 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 Eastern i.e., Eastern and Allison go up and down completely randomly.

Pair Corralation between Eastern and Allison

Considering the 90-day investment horizon Eastern Co is expected to under-perform the Allison. In addition to that, Eastern is 1.71 times more volatile than Allison Transmission 5875. It trades about -0.13 of its total potential returns per unit of risk. Allison Transmission 5875 is currently generating about -0.17 per unit of volatility. If you would invest  10,000  in Allison Transmission 5875 on September 21, 2024 and sell it today you would lose (1,050) from holding Allison Transmission 5875 or give up 10.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.35%
Values	Daily Returns

Eastern Co  vs.  Allison Transmission 5875

Eastern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eastern Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's primary indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

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 Eastern and Allison

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

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.