Correlation Between Monro Muffler and Allison Transmission

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

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

Diversification Opportunities for Monro Muffler and Allison Transmission

0.4

Correlation Coefficient

Monro Muffler  Allison Transmission

Very weak diversification

The 3 months correlation between Monro and Allison is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Monro Muffler Brake and Allison Transmission Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allison Transmission and Monro Muffler 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 Monro Muffler Brake 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 Monro Muffler i.e., Monro Muffler and Allison Transmission go up and down completely randomly.

Pair Corralation between Monro Muffler and Allison Transmission

Given the investment horizon of 90 days Monro Muffler Brake is expected to under-perform the Allison Transmission. But the stock apears to be less risky and, when comparing its historical volatility, Monro Muffler Brake is 1.1 times less risky than Allison Transmission. The stock trades about -0.33 of its potential returns per unit of risk. The Allison Transmission Holdings is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  11,850  in Allison Transmission Holdings on November 28, 2024 and sell it today you would lose (1,910) from holding Allison Transmission Holdings or give up 16.12% of portfolio value over 90 days.

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

Monro Muffler Brake  vs.  Allison Transmission Holdings

Monro Muffler Brake

Risk-Adjusted Performance

Very Weak

Over the last 90 days Monro Muffler Brake has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

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 weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Monro Muffler and Allison Transmission

The main advantage of trading using opposite Monro Muffler and Allison Transmission positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Monro Muffler 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 Monro Muffler Brake 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.