"I think it's an advantage we could possibly take. If we had to play Liverpool in a derby match it's a good time to do that in between the two Champions League games," Allardyce told a news conference on Friday.
Juergen Klopp's side could be without top-scorer Mohamed Salah after the forward limped off with a knock in the second half of last Wednesday's first leg against City.
"The approach has to be about us getting better at nullifying their attacking options. That's their main strength and we have to snuff it out - not just Salah... the players can do it if they really believe it.
"If Juergen changes the team it'll still be strong and fresh. It'll be interesting to see his selection but it's all about us as well."
Midfielder Idrissa Gueye could return to the Everton squad after shaking off a hamstring injury he picked up in the 2-1 win over Stoke City last month.
Everton are ninth in the table with 40 points from 32 games while Liverpool are third with 66 points.
(Reporting by Shrivathsa Sridhar in Bengaluru; Editing by Christian Radnedge)
