Correlation Between Allegion PLC and China Aircraft

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

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

Diversification Opportunities for Allegion PLC and China Aircraft

-0.08

Correlation Coefficient

Allegion PLC  China Aircraft

Good diversification

The 3 months correlation between Allegion and China is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Allegion PLC and China Aircraft Leasing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Aircraft Leasing 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 China Aircraft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Aircraft Leasing has no effect on the direction of Allegion PLC i.e., Allegion PLC and China Aircraft go up and down completely randomly.

Pair Corralation between Allegion PLC and China Aircraft

Given the investment horizon of 90 days Allegion PLC is expected to under-perform the China Aircraft. But the stock apears to be less risky and, when comparing its historical volatility, Allegion PLC is 1.43 times less risky than China Aircraft. The stock trades about -0.03 of its potential returns per unit of risk. The China Aircraft Leasing is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  40.00  in China Aircraft Leasing on December 22, 2024 and sell it today you would earn a total of  7.00  from holding China Aircraft Leasing or generate 17.5% 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.  China Aircraft Leasing

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.

China Aircraft Leasing

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Aircraft Leasing are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak essential indicators, China Aircraft reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Allegion PLC and China Aircraft

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

The idea behind Allegion PLC and China Aircraft Leasing 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.

Check out your portfolio center.

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.