Correlation Between Allegion PLC and Energy

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

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

Diversification Opportunities for Allegion PLC and Energy

0.38

Correlation Coefficient

Allegion PLC  Energy

Weak diversification

The 3 months correlation between Allegion and Energy is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Allegion PLC and Energy and Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy and Environmental 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 Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy and Environmental has no effect on the direction of Allegion PLC i.e., Allegion PLC and Energy go up and down completely randomly.

Pair Corralation between Allegion PLC and Energy

Given the investment horizon of 90 days Allegion PLC is expected to under-perform the Energy. But the stock apears to be less risky and, when comparing its historical volatility, Allegion PLC is 3.18 times less risky than Energy. The stock trades about -0.03 of its potential returns per unit of risk. The Energy and Environmental is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  7.00  in Energy and Environmental on December 22, 2024 and sell it today you would lose (0.49) from holding Energy and Environmental or give up 7.0% of portfolio value over 90 days.

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

Allegion PLC  vs.  Energy and Environmental

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.

Energy and Environmental

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Allegion PLC and Energy

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

The idea behind Allegion PLC and Energy and Environmental 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.