Correlation Between Allegion PLC and Intercontinental

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

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

Diversification Opportunities for Allegion PLC and Intercontinental

0.9

Correlation Coefficient

Allegion PLC  Intercontinental

Almost no diversification

The 3 months correlation between Allegion and Intercontinental is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Allegion PLC and Intercontinental Exchange in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intercontinental Exchange 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 Intercontinental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intercontinental Exchange has no effect on the direction of Allegion PLC i.e., Allegion PLC and Intercontinental go up and down completely randomly.

Pair Corralation between Allegion PLC and Intercontinental

Given the investment horizon of 90 days Allegion PLC is expected to generate 0.95 times more return on investment than Intercontinental. However, Allegion PLC is 1.05 times less risky than Intercontinental. It trades about 0.06 of its potential returns per unit of risk. Intercontinental Exchange is currently generating about -0.03 per unit of risk. If you would invest  13,213  in Allegion PLC on October 23, 2024 and sell it today you would earn a total of  146.00  from holding Allegion PLC or generate 1.1% return on investment over 90 days.

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

Allegion PLC  vs.  Intercontinental Exchange

Allegion PLC

Risk-Adjusted Performance

0 of 100

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.

Intercontinental Exchange

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Intercontinental Exchange has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Allegion PLC and Intercontinental

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

The idea behind Allegion PLC and Intercontinental Exchange 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.