Correlation Between Douglas Dynamics and Allison Transmission

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

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

Diversification Opportunities for Douglas Dynamics and Allison Transmission

-0.66

Correlation Coefficient

Douglas Dynamics  Allison Transmission

Excellent diversification

The 3 months correlation between Douglas and Allison is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Douglas Dynamics and Allison Transmission Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allison Transmission and Douglas Dynamics 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 Douglas Dynamics 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 Douglas Dynamics i.e., Douglas Dynamics and Allison Transmission go up and down completely randomly.

Pair Corralation between Douglas Dynamics and Allison Transmission

Given the investment horizon of 90 days Douglas Dynamics is expected to under-perform the Allison Transmission. In addition to that, Douglas Dynamics is 1.41 times more volatile than Allison Transmission Holdings. It trades about -0.04 of its total potential returns per unit of risk. Allison Transmission Holdings is currently generating about 0.36 per unit of volatility. 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 Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Douglas Dynamics  vs.  Allison Transmission Holdings

Douglas Dynamics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Douglas Dynamics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

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 Douglas Dynamics and Allison Transmission

The main advantage of trading using opposite Douglas Dynamics and Allison Transmission positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Douglas Dynamics 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 Douglas Dynamics 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.