Correlation Between Allison Transmission and Magna International

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

Diversification Opportunities for Allison Transmission and Magna International

0.15

Correlation Coefficient

Allison Transmission  Magna International

Average diversification

The 3 months correlation between Allison and Magna is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Allison Transmission Holdings and Magna International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magna International 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 Magna International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magna International has no effect on the direction of Allison Transmission i.e., Allison Transmission and Magna International go up and down completely randomly.

Pair Corralation between Allison Transmission and Magna International

Given the investment horizon of 90 days Allison Transmission Holdings is expected to generate 0.88 times more return on investment than Magna International. However, Allison Transmission Holdings is 1.14 times less risky than Magna International. It trades about 0.02 of its potential returns per unit of risk. Magna International is currently generating about -0.18 per unit of risk. If you would invest  7,509  in Allison Transmission Holdings on February 28, 2024 and sell it today you would earn a total of  71.00  from holding Allison Transmission Holdings or generate 0.95% return on investment over 90 days.

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

Allison Transmission Holdings  vs.  Magna International

Allison Transmission

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Allison Transmission Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Allison Transmission is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Magna International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Magna International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Allison Transmission and Magna International

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

The idea behind Allison Transmission Holdings and Magna International 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.