Correlation Between Allison and Futuretech

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

Diversification Opportunities for Allison and Futuretech

-0.21

Correlation Coefficient

Allison  Futuretech

Very good diversification

The 3 months correlation between Allison and Futuretech is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Allison Transmission 5875 and Futuretech II Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Futuretech II Acquisition 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 Futuretech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Futuretech II Acquisition has no effect on the direction of Allison i.e., Allison and Futuretech go up and down completely randomly.

Pair Corralation between Allison and Futuretech

Assuming the 90 days trading horizon Allison Transmission 5875 is expected to generate 81.4 times more return on investment than Futuretech. However, Allison is 81.4 times more volatile than Futuretech II Acquisition. It trades about 0.06 of its potential returns per unit of risk. Futuretech II Acquisition is currently generating about 0.04 per unit of risk. If you would invest  9,754  in Allison Transmission 5875 on October 27, 2024 and sell it today you would lose (804.00) from holding Allison Transmission 5875 or give up 8.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.28%
Values	Daily Returns

Allison Transmission 5875  vs.  Futuretech II Acquisition

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 latest weak performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for Allison Transmission 5875 investors.

Futuretech II Acquisition

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Futuretech II Acquisition are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady forward indicators, Futuretech may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Allison and Futuretech

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

The idea behind Allison Transmission 5875 and Futuretech II Acquisition 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.