Correlation Between Allegion PLC and Melrose Industries

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

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

Diversification Opportunities for Allegion PLC and Melrose Industries

-0.61

Correlation Coefficient

Allegion PLC  Melrose Industries

Excellent diversification

The 3 months correlation between Allegion and Melrose is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Allegion PLC and Melrose Industries PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Melrose Industries PLC 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 Melrose Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Melrose Industries PLC has no effect on the direction of Allegion PLC i.e., Allegion PLC and Melrose Industries go up and down completely randomly.

Pair Corralation between Allegion PLC and Melrose Industries

Given the investment horizon of 90 days Allegion PLC is expected to under-perform the Melrose Industries. But the stock apears to be less risky and, when comparing its historical volatility, Allegion PLC is 4.22 times less risky than Melrose Industries. The stock trades about -0.21 of its potential returns per unit of risk. The Melrose Industries PLC is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  588.00  in Melrose Industries PLC on October 11, 2024 and sell it today you would earn a total of  119.00  from holding Melrose Industries PLC or generate 20.24% return on investment over 90 days.

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

Allegion PLC  vs.  Melrose Industries PLC

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 weak performance in the last few months, the Stock's essential indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Melrose Industries PLC

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Melrose Industries PLC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Melrose Industries reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Allegion PLC and Melrose Industries

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

The idea behind Allegion PLC and Melrose Industries PLC 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.