Correlation Between Allegion PLC and BIO Key

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

By analyzing existing cross correlation between Allegion PLC and BIO Key International, you can compare the effects of market volatilities on Allegion PLC and BIO Key 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 BIO Key. Check out your portfolio center. Please also check ongoing floating volatility patterns of Allegion PLC and BIO Key.

Diversification Opportunities for Allegion PLC and BIO Key

-0.34

Correlation Coefficient

Allegion PLC  BIO Key

Very good diversification

The 3 months correlation between Allegion and BIO is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Allegion PLC and BIO Key International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BIO Key International 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 BIO Key. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BIO Key International has no effect on the direction of Allegion PLC i.e., Allegion PLC and BIO Key go up and down completely randomly.

Pair Corralation between Allegion PLC and BIO Key

Given the investment horizon of 90 days Allegion PLC is expected to under-perform the BIO Key. But the stock apears to be less risky and, when comparing its historical volatility, Allegion PLC is 11.02 times less risky than BIO Key. The stock trades about -0.1 of its potential returns per unit of risk. The BIO Key International is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  112.00  in BIO Key International on December 1, 2024 and sell it today you would lose (11.00) from holding BIO Key International or give up 9.82% of portfolio value over 90 days.

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

Allegion PLC  vs.  BIO Key International

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 latest weak performance, the Stock's essential indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

BIO Key International

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BIO Key International are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly conflicting basic indicators, BIO Key demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Allegion PLC and BIO Key

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

The idea behind Allegion PLC and BIO Key International 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.