Correlation Between Blue Line and ADT

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

By analyzing existing cross correlation between Blue Line Protection and ADT Inc, you can compare the effects of market volatilities on Blue Line and ADT 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 Blue Line with a short position of ADT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Blue Line and ADT.

Diversification Opportunities for Blue Line and ADT

0.18

Correlation Coefficient

Blue Line  ADT

Average diversification

The 3 months correlation between Blue and ADT is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Blue Line Protection and ADT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADT Inc and Blue Line 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 Blue Line Protection are associated (or correlated) with ADT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ADT Inc has no effect on the direction of Blue Line i.e., Blue Line and ADT go up and down completely randomly.

Pair Corralation between Blue Line and ADT

Given the investment horizon of 90 days Blue Line Protection is expected to under-perform the ADT. In addition to that, Blue Line is 10.76 times more volatile than ADT Inc. It trades about -0.07 of its total potential returns per unit of risk. ADT Inc is currently generating about -0.2 per unit of volatility. If you would invest  766.00  in ADT Inc on October 11, 2024 and sell it today you would lose (63.00) from holding ADT Inc or give up 8.22% of portfolio value over 90 days.

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

Blue Line Protection  vs.  ADT Inc

Blue Line Protection

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Blue Line Protection has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

ADT Inc

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ADT Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, ADT is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Blue Line and ADT

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

The idea behind Blue Line Protection and ADT Inc 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..