Correlation Between Carbon Revolution and Allison Transmission

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

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

Diversification Opportunities for Carbon Revolution and Allison Transmission

-0.86

Correlation Coefficient

Carbon Revolution  Allison Transmission

Pay attention - limited upside

The 3 months correlation between Carbon and Allison is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding Carbon Revolution Public and Allison Transmission Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allison Transmission and Carbon Revolution 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 Carbon Revolution Public 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 Carbon Revolution i.e., Carbon Revolution and Allison Transmission go up and down completely randomly.

Pair Corralation between Carbon Revolution and Allison Transmission

Given the investment horizon of 90 days Carbon Revolution Public is expected to under-perform the Allison Transmission. In addition to that, Carbon Revolution is 3.03 times more volatile than Allison Transmission Holdings. It trades about -0.23 of its total potential returns per unit of risk. Allison Transmission Holdings is currently generating about 0.26 per unit of volatility. If you would invest  8,845  in Allison Transmission Holdings on September 4, 2024 and sell it today you would earn a total of  2,830  from holding Allison Transmission Holdings or generate 32.0% return on investment over 90 days.

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

Carbon Revolution Public  vs.  Allison Transmission Holdings

Carbon Revolution Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Carbon Revolution Public has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's technical and fundamental indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Allison Transmission

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Allison Transmission Holdings are ranked lower than 20 (%) 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 Carbon Revolution and Allison Transmission

The main advantage of trading using opposite Carbon Revolution and Allison Transmission positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carbon Revolution 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 Carbon Revolution Public 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.