Correlation Between Allison and Deluxe

Can any of the company-specific risk be diversified away by investing in both Allison and Deluxe 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 Deluxe 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 Deluxe, you can compare the effects of market volatilities on Allison and Deluxe 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 Deluxe. Check out your portfolio center. Please also check ongoing floating volatility patterns of Allison and Deluxe.

Diversification Opportunities for Allison and Deluxe

-0.33

Correlation Coefficient

Allison  Deluxe

Very good diversification

The 3 months correlation between Allison and Deluxe is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Allison Transmission 475 and Deluxe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deluxe 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 Deluxe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deluxe has no effect on the direction of Allison i.e., Allison and Deluxe go up and down completely randomly.

Pair Corralation between Allison and Deluxe

Assuming the 90 days trading horizon Allison is expected to generate 32.22 times less return on investment than Deluxe. But when comparing it to its historical volatility, Allison Transmission 475 is 5.68 times less risky than Deluxe. It trades about 0.02 of its potential returns per unit of risk. Deluxe is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,924  in Deluxe on September 30, 2024 and sell it today you would earn a total of  320.00  from holding Deluxe or generate 16.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	78.13%
Values	Daily Returns

Allison Transmission 475  vs.  Deluxe

Allison Transmission 475

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Allison Transmission 475 are ranked lower than 1 (%) 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.

Deluxe

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Deluxe are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady essential indicators, Deluxe showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Allison and Deluxe

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

The idea behind Allison Transmission 475 and Deluxe 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.