Correlation Between Westport Fuel and Allison Transmission

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

By analyzing existing cross correlation between Westport Fuel Systems and Allison Transmission Holdings, you can compare the effects of market volatilities on Westport Fuel and Allison Transmission 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 Westport Fuel with a short position of Allison Transmission. Check out your portfolio center. Please also check ongoing floating volatility patterns of Westport Fuel and Allison Transmission.

Diversification Opportunities for Westport Fuel and Allison Transmission

0.27

Correlation Coefficient

Westport Fuel  Allison Transmission

Modest diversification

The 3 months correlation between Westport and Allison is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Westport Fuel Systems and Allison Transmission Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allison Transmission and Westport Fuel 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 Westport Fuel Systems are associated (or correlated) with Allison Transmission. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allison Transmission has no effect on the direction of Westport Fuel i.e., Westport Fuel and Allison Transmission go up and down completely randomly.

Pair Corralation between Westport Fuel and Allison Transmission

Given the investment horizon of 90 days Westport Fuel Systems is expected to generate 1.6 times more return on investment than Allison Transmission. However, Westport Fuel is 1.6 times more volatile than Allison Transmission Holdings. It trades about 0.04 of its potential returns per unit of risk. Allison Transmission Holdings is currently generating about -0.07 per unit of risk. If you would invest  369.00  in Westport Fuel Systems on December 30, 2024 and sell it today you would earn a total of  17.00  from holding Westport Fuel Systems or generate 4.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Westport Fuel Systems  vs.  Allison Transmission Holdings

Westport Fuel Systems

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Westport Fuel Systems are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Westport Fuel may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Allison Transmission

Risk-Adjusted Performance

Very Weak

Over the last 90 days Allison Transmission Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Westport Fuel and Allison Transmission

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

The idea behind Westport Fuel Systems and Allison Transmission Holdings 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.