Correlation Between Falcons Beyond and Allison Transmission

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

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

Diversification Opportunities for Falcons Beyond and Allison Transmission

-0.52

Correlation Coefficient

Falcons Beyond  Allison Transmission

Excellent diversification

The 3 months correlation between Falcons and Allison is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Falcons Beyond Global, and Allison Transmission Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allison Transmission and Falcons Beyond 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 Falcons Beyond Global, 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 Falcons Beyond i.e., Falcons Beyond and Allison Transmission go up and down completely randomly.

Pair Corralation between Falcons Beyond and Allison Transmission

Assuming the 90 days horizon Falcons Beyond Global, is expected to generate 11.31 times more return on investment than Allison Transmission. However, Falcons Beyond is 11.31 times more volatile than Allison Transmission Holdings. It trades about 0.09 of its potential returns per unit of risk. Allison Transmission Holdings is currently generating about 0.12 per unit of risk. If you would invest  32.00  in Falcons Beyond Global, on October 5, 2024 and sell it today you would earn a total of  46.00  from holding Falcons Beyond Global, or generate 143.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	78.71%
Values	Daily Returns

Falcons Beyond Global,  vs.  Allison Transmission Holdings

Falcons Beyond Global,

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Falcons Beyond Global, are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Falcons Beyond showed solid returns over the last few months and may actually be approaching a breakup point.

Allison Transmission

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Allison Transmission Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Allison Transmission may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Falcons Beyond and Allison Transmission

The main advantage of trading using opposite Falcons Beyond and Allison Transmission positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Falcons Beyond 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 Falcons Beyond Global, 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.