Correlation Between Allison and AMCON Distributing

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

By analyzing existing cross correlation between Allison Transmission 5875 and AMCON Distributing, you can compare the effects of market volatilities on Allison and AMCON Distributing 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 AMCON Distributing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Allison and AMCON Distributing.

Diversification Opportunities for Allison and AMCON Distributing

0.05

Correlation Coefficient

Allison  AMCON Distributing

Significant diversification

The 3 months correlation between Allison and AMCON is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Allison Transmission 5875 and AMCON Distributing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AMCON Distributing 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 5875 are associated (or correlated) with AMCON Distributing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AMCON Distributing has no effect on the direction of Allison i.e., Allison and AMCON Distributing go up and down completely randomly.

Pair Corralation between Allison and AMCON Distributing

Assuming the 90 days trading horizon Allison Transmission 5875 is expected to generate 20.9 times more return on investment than AMCON Distributing. However, Allison is 20.9 times more volatile than AMCON Distributing. It trades about 0.06 of its potential returns per unit of risk. AMCON Distributing is currently generating about 0.0 per unit of risk. If you would invest  9,511  in Allison Transmission 5875 on September 26, 2024 and sell it today you would earn a total of  377.00  from holding Allison Transmission 5875 or generate 3.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	91.85%
Values	Daily Returns

Allison Transmission 5875  vs.  AMCON Distributing

Allison Transmission 5875

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Allison Transmission 5875 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 newest stock price disturbance, may contribute to short-term losses for the investors.

AMCON Distributing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AMCON Distributing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, AMCON Distributing is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Allison and AMCON Distributing

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

The idea behind Allison Transmission 5875 and AMCON Distributing 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.