Correlation Between ADT and Allegion PLC

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

By analyzing existing cross correlation between ADT Inc and Allegion PLC, you can compare the effects of market volatilities on ADT and Allegion PLC 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 ADT with a short position of Allegion PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of ADT and Allegion PLC.

Diversification Opportunities for ADT and Allegion PLC

-0.23

Correlation Coefficient

ADT  Allegion PLC

Very good diversification

The 3 months correlation between ADT and Allegion is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding ADT Inc and Allegion PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegion PLC and ADT 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 ADT Inc are associated (or correlated) with Allegion PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allegion PLC has no effect on the direction of ADT i.e., ADT and Allegion PLC go up and down completely randomly.

Pair Corralation between ADT and Allegion PLC

Considering the 90-day investment horizon ADT Inc is expected to generate 1.23 times more return on investment than Allegion PLC. However, ADT is 1.23 times more volatile than Allegion PLC. It trades about 0.16 of its potential returns per unit of risk. Allegion PLC is currently generating about 0.01 per unit of risk. If you would invest  684.00  in ADT Inc on December 28, 2024 and sell it today you would earn a total of  133.00  from holding ADT Inc or generate 19.44% return on investment over 90 days.

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

ADT Inc  vs.  Allegion PLC

ADT Inc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ADT Inc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady fundamental indicators, ADT unveiled solid returns over the last few months and may actually be approaching a breakup point.

Allegion PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Allegion PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Allegion PLC is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with ADT and Allegion PLC

The main advantage of trading using opposite ADT and Allegion PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ADT position performs unexpectedly, Allegion PLC 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 Allegion PLC will offset losses from the drop in Allegion PLC's long position.

The idea behind ADT Inc and Allegion PLC 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.