Correlation Between Allison Transmission and Fibra Terrafina

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

Diversification Opportunities for Allison Transmission and Fibra Terrafina

0.64

Correlation Coefficient

Allison Transmission  Fibra Terrafina

Poor diversification

The 3 months correlation between Allison and Fibra is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Allison Transmission Holdings and Fibra Terrafina in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fibra Terrafina 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 Fibra Terrafina. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fibra Terrafina has no effect on the direction of Allison Transmission i.e., Allison Transmission and Fibra Terrafina go up and down completely randomly.

Pair Corralation between Allison Transmission and Fibra Terrafina

Given the investment horizon of 90 days Allison Transmission is expected to generate 1.79 times less return on investment than Fibra Terrafina. But when comparing it to its historical volatility, Allison Transmission Holdings is 3.21 times less risky than Fibra Terrafina. It trades about 0.08 of its potential returns per unit of risk. Fibra Terrafina is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  151.00  in Fibra Terrafina on February 17, 2024 and sell it today you would earn a total of  94.00  from holding Fibra Terrafina or generate 62.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	88.48%
Values	Daily Returns

Allison Transmission Holdings  vs.  Fibra Terrafina

Allison Transmission

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Allison Transmission Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Allison Transmission may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Fibra Terrafina

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fibra Terrafina are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Fibra Terrafina may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Allison Transmission and Fibra Terrafina

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

The idea behind Allison Transmission Holdings and Fibra Terrafina 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.