Correlation Between Aptiv PLC and Allison Transmission

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

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

Diversification Opportunities for Aptiv PLC and Allison Transmission

-0.43

Correlation Coefficient

Aptiv PLC  Allison Transmission

Very good diversification

The 3 months correlation between Aptiv and Allison is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Aptiv PLC and Allison Transmission Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allison Transmission and Aptiv PLC 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 Aptiv PLC 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 Aptiv PLC i.e., Aptiv PLC and Allison Transmission go up and down completely randomly.

Pair Corralation between Aptiv PLC and Allison Transmission

Given the investment horizon of 90 days Aptiv PLC is expected to generate 23.36 times less return on investment than Allison Transmission. In addition to that, Aptiv PLC is 1.42 times more volatile than Allison Transmission Holdings. It trades about 0.0 of its total potential returns per unit of risk. Allison Transmission Holdings is currently generating about 0.09 per unit of volatility. If you would invest  3,685  in Allison Transmission Holdings on February 12, 2024 and sell it today you would earn a total of  3,967  from holding Allison Transmission Holdings or generate 107.65% return on investment over 90 days.

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

Aptiv PLC  vs.  Allison Transmission Holdings

Aptiv PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aptiv PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Aptiv PLC is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

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 weak basic indicators, Allison Transmission displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aptiv PLC and Allison Transmission

The main advantage of trading using opposite Aptiv PLC and Allison Transmission positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aptiv PLC 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 Aptiv PLC 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.