Correlation Between Allison Transmission and Goodyear Tire

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

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

Diversification Opportunities for Allison Transmission and Goodyear Tire

-0.08

Correlation Coefficient

Allison Transmission  Goodyear Tire

Good diversification

The 3 months correlation between Allison and Goodyear is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Allison Transmission Holdings and Goodyear Tire Rubber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goodyear Tire Rubber and Allison Transmission 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 Holdings are associated (or correlated) with Goodyear Tire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goodyear Tire Rubber has no effect on the direction of Allison Transmission i.e., Allison Transmission and Goodyear Tire go up and down completely randomly.

Pair Corralation between Allison Transmission and Goodyear Tire

Given the investment horizon of 90 days Allison Transmission Holdings is expected to under-perform the Goodyear Tire. In addition to that, Allison Transmission is 1.18 times more volatile than Goodyear Tire Rubber. It trades about -0.15 of its total potential returns per unit of risk. Goodyear Tire Rubber is currently generating about 0.09 per unit of volatility. If you would invest  1,257  in Goodyear Tire Rubber on February 11, 2024 and sell it today you would earn a total of  39.00  from holding Goodyear Tire Rubber or generate 3.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Allison Transmission Holdings  vs.  Goodyear Tire Rubber

Allison Transmission

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Allison Transmission Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Allison Transmission displayed solid returns over the last few months and may actually be approaching a breakup point.

Goodyear Tire Rubber

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Allison Transmission and Goodyear Tire

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

The idea behind Allison Transmission Holdings and Goodyear Tire Rubber 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.