Correlation Between Stepstone and Allison

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

By analyzing existing cross correlation between Stepstone Group and Allison Transmission 475, you can compare the effects of market volatilities on Stepstone 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 Stepstone with a short position of Allison. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepstone and Allison.

Diversification Opportunities for Stepstone and Allison

0.2

Correlation Coefficient

Stepstone  Allison

Modest diversification

The 3 months correlation between Stepstone and Allison is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Stepstone Group and Allison Transmission 475 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allison Transmission 475 and Stepstone 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 Stepstone Group 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 475 has no effect on the direction of Stepstone i.e., Stepstone and Allison go up and down completely randomly.

Pair Corralation between Stepstone and Allison

Given the investment horizon of 90 days Stepstone Group is expected to generate 5.56 times more return on investment than Allison. However, Stepstone is 5.56 times more volatile than Allison Transmission 475. It trades about 0.02 of its potential returns per unit of risk. Allison Transmission 475 is currently generating about -0.03 per unit of risk. If you would invest  5,969  in Stepstone Group on October 8, 2024 and sell it today you would earn a total of  65.00  from holding Stepstone Group or generate 1.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	75.81%
Values	Daily Returns

Stepstone Group  vs.  Allison Transmission 475

Stepstone Group

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Stepstone Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, Stepstone is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Allison Transmission 475

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Allison Transmission 475 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Allison is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Stepstone and Allison

The main advantage of trading using opposite Stepstone and Allison positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepstone 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 Stepstone Group and Allison Transmission 475 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.