Correlation Between Allison and Universal

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

Diversification Opportunities for Allison and Universal

-0.29

Correlation Coefficient

Allison  Universal

Very good diversification

The 3 months correlation between Allison and Universal is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Allison Transmission 475 and Universal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal 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 Universal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal has no effect on the direction of Allison i.e., Allison and Universal go up and down completely randomly.

Pair Corralation between Allison and Universal

Assuming the 90 days trading horizon Allison is expected to generate 5.14 times less return on investment than Universal. But when comparing it to its historical volatility, Allison Transmission 475 is 3.22 times less risky than Universal. It trades about 0.03 of its potential returns per unit of risk. Universal is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  5,277  in Universal on October 3, 2024 and sell it today you would earn a total of  207.00  from holding Universal or generate 3.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	77.38%
Values	Daily Returns

Allison Transmission 475  vs.  Universal

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.

Universal

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with Allison and Universal

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

The idea behind Allison Transmission 475 and Universal 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.