Correlation Between Allegion PLC and ADT

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

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

Diversification Opportunities for Allegion PLC and ADT

-0.23

Correlation Coefficient

Allegion PLC  ADT

Very good diversification

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

Pair Corralation between Allegion PLC and ADT

Given the investment horizon of 90 days Allegion PLC is expected to generate 31.92 times less return on investment than ADT. But when comparing it to its historical volatility, Allegion PLC is 1.23 times less risky than ADT. It trades about 0.01 of its potential returns per unit of risk. ADT Inc is currently generating about 0.16 of returns per unit of risk over similar time horizon. 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

Allegion PLC  vs.  ADT Inc

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.

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.

Pair Trading with Allegion PLC and ADT

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

The idea behind Allegion PLC and ADT Inc 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.