Correlation Between Allegion PLC and CompX International

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

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

Diversification Opportunities for Allegion PLC and CompX International

0.68

Correlation Coefficient

Allegion PLC  CompX International

Poor diversification

The 3 months correlation between Allegion and CompX is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Allegion PLC and CompX International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CompX 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 CompX International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CompX International has no effect on the direction of Allegion PLC i.e., Allegion PLC and CompX International go up and down completely randomly.

Pair Corralation between Allegion PLC and CompX International

Given the investment horizon of 90 days Allegion PLC is expected to generate 0.3 times more return on investment than CompX International. However, Allegion PLC is 3.33 times less risky than CompX International. It trades about -0.1 of its potential returns per unit of risk. CompX International is currently generating about -0.03 per unit of risk. If you would invest  14,092  in Allegion PLC on November 27, 2024 and sell it today you would lose (1,101) from holding Allegion PLC or give up 7.81% of portfolio value over 90 days.

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

Allegion PLC  vs.  CompX 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.

CompX International

Risk-Adjusted Performance

Very Weak

Over the last 90 days CompX International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Allegion PLC and CompX International

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

The idea behind Allegion PLC and CompX 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.