Correlation Between Allison and AmTrust Financial

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

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

Diversification Opportunities for Allison and AmTrust Financial

-0.17

Correlation Coefficient

Allison  AmTrust Financial

Good diversification

The 3 months correlation between Allison and AmTrust is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Allison Transmission 475 and AmTrust Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AmTrust Financial and Allison 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 Allison Transmission 475 are associated (or correlated) with AmTrust Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AmTrust Financial has no effect on the direction of Allison i.e., Allison and AmTrust Financial go up and down completely randomly.

Pair Corralation between Allison and AmTrust Financial

Assuming the 90 days trading horizon Allison Transmission 475 is expected to generate 35.3 times more return on investment than AmTrust Financial. However, Allison is 35.3 times more volatile than AmTrust Financial Services. It trades about 0.08 of its potential returns per unit of risk. AmTrust Financial Services is currently generating about 0.03 per unit of risk. If you would invest  9,353  in Allison Transmission 475 on October 6, 2024 and sell it today you would earn a total of  522.00  from holding Allison Transmission 475 or generate 5.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	82.32%
Values	Daily Returns

Allison Transmission 475  vs.  AmTrust Financial Services

Allison Transmission 475

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Allison Transmission 475 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

AmTrust Financial

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AmTrust Financial Services are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating forward indicators, AmTrust Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Allison and AmTrust Financial

The main advantage of trading using opposite Allison and AmTrust Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Allison position performs unexpectedly, AmTrust Financial 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 AmTrust Financial will offset losses from the drop in AmTrust Financial's long position.

The idea behind Allison Transmission 475 and AmTrust Financial Services 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.