Correlation Between Allison Transmission and Kongsberg Automotive
Can any of the company-specific risk be diversified away by investing in both Allison Transmission and Kongsberg Automotive 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 Kongsberg Automotive 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 Kongsberg Automotive ASA, you can compare the effects of market volatilities on Allison Transmission and Kongsberg Automotive 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 Kongsberg Automotive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Allison Transmission and Kongsberg Automotive.
Diversification Opportunities for Allison Transmission and Kongsberg Automotive
-0.33 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Allison and Kongsberg is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Allison Transmission Holdings and Kongsberg Automotive ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kongsberg Automotive ASA 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 Kongsberg Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kongsberg Automotive ASA has no effect on the direction of Allison Transmission i.e., Allison Transmission and Kongsberg Automotive go up and down completely randomly.
Pair Corralation between Allison Transmission and Kongsberg Automotive
Given the investment horizon of 90 days Allison Transmission is expected to generate 4.67 times less return on investment than Kongsberg Automotive. But when comparing it to its historical volatility, Allison Transmission Holdings is 8.56 times less risky than Kongsberg Automotive. It trades about 0.43 of its potential returns per unit of risk. Kongsberg Automotive ASA is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 11.00 in Kongsberg Automotive ASA on October 25, 2024 and sell it today you would earn a total of 5.00 from holding Kongsberg Automotive ASA or generate 45.45% 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. Kongsberg Automotive ASA
Performance |
| Timeline |
| Allison Transmission |
| Kongsberg Automotive ASA |
Allison Transmission and Kongsberg Automotive Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Allison Transmission and Kongsberg Automotive
The main advantage of trading using opposite Allison Transmission and Kongsberg Automotive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Allison Transmission position performs unexpectedly, Kongsberg Automotive 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 Kongsberg Automotive will offset losses from the drop in Kongsberg Automotive's long position.| Allison Transmission vs. Gentex | Allison Transmission vs. Adient PLC | Allison Transmission vs. Autoliv | Allison Transmission vs. Fox Factory Holding |
Check out your portfolio center.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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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