Correlation Between Brookfield Business and Allison Transmission

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

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

Diversification Opportunities for Brookfield Business and Allison Transmission

0.79

Correlation Coefficient

Brookfield Business  Allison Transmission

Poor diversification

The 3 months correlation between Brookfield and Allison is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Brookfield Business Partners and Allison Transmission Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allison Transmission and Brookfield Business 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 Brookfield Business Partners 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 Brookfield Business i.e., Brookfield Business and Allison Transmission go up and down completely randomly.

Pair Corralation between Brookfield Business and Allison Transmission

Considering the 90-day investment horizon Brookfield Business is expected to generate 2.04 times less return on investment than Allison Transmission. But when comparing it to its historical volatility, Brookfield Business Partners is 1.15 times less risky than Allison Transmission. It trades about 0.21 of its potential returns per unit of risk. Allison Transmission Holdings is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest  9,788  in Allison Transmission Holdings on August 24, 2024 and sell it today you would earn a total of  2,023  from holding Allison Transmission Holdings or generate 20.67% return on investment over 90 days.

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

Brookfield Business Partners  vs.  Allison Transmission Holdings

Brookfield Business

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield Business Partners are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental drivers, Brookfield Business unveiled solid returns over the last few months and may actually be approaching a breakup point.

Allison Transmission

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Allison Transmission Holdings are ranked lower than 19 (%) 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 Brookfield Business and Allison Transmission

The main advantage of trading using opposite Brookfield Business and Allison Transmission positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brookfield Business 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 Brookfield Business Partners 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.