Correlation Between Allegion PLC and MSA Safety

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

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

Diversification Opportunities for Allegion PLC and MSA Safety

0.91

Correlation Coefficient

Allegion PLC  MSA Safety

Almost no diversification

The 3 months correlation between Allegion and MSA is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Allegion PLC and MSA Safety in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MSA Safety 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 MSA Safety. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MSA Safety has no effect on the direction of Allegion PLC i.e., Allegion PLC and MSA Safety go up and down completely randomly.

Pair Corralation between Allegion PLC and MSA Safety

Given the investment horizon of 90 days Allegion PLC is expected to under-perform the MSA Safety. In addition to that, Allegion PLC is 1.56 times more volatile than MSA Safety. It trades about -0.11 of its total potential returns per unit of risk. MSA Safety is currently generating about -0.07 per unit of volatility. If you would invest  16,595  in MSA Safety on November 27, 2024 and sell it today you would lose (283.00) from holding MSA Safety or give up 1.71% of portfolio value over 90 days.

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

Allegion PLC  vs.  MSA Safety

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.

MSA Safety

Risk-Adjusted Performance

Very Weak

Over the last 90 days MSA Safety has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, MSA Safety is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Allegion PLC and MSA Safety

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

The idea behind Allegion PLC and MSA Safety 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.