Correlation Between Allison and Universal Display

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

Diversification Opportunities for Allison and Universal Display

0.29

Correlation Coefficient

Allison  Universal Display

Modest 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 5875 and Universal Display in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Display 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 Universal Display. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Display has no effect on the direction of Allison i.e., Allison and Universal Display go up and down completely randomly.

Pair Corralation between Allison and Universal Display

Assuming the 90 days trading horizon Allison Transmission 5875 is expected to generate 28.37 times more return on investment than Universal Display. However, Allison is 28.37 times more volatile than Universal Display. It trades about 0.06 of its potential returns per unit of risk. Universal Display is currently generating about 0.03 per unit of risk. If you would invest  9,697  in Allison Transmission 5875 on October 3, 2024 and sell it today you would earn a total of  191.00  from holding Allison Transmission 5875 or generate 1.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	90.71%
Values	Daily Returns

Allison Transmission 5875  vs.  Universal Display

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.

Universal Display

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Universal Display has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Allison and Universal Display

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

The idea behind Allison Transmission 5875 and Universal Display 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.