Correlation Between CompX International and ADT

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

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

Diversification Opportunities for CompX International and ADT

-0.7

Correlation Coefficient

CompX International  ADT

Excellent diversification

The 3 months correlation between CompX and ADT is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding CompX International and ADT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADT Inc and CompX International 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 CompX International 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 CompX International i.e., CompX International and ADT go up and down completely randomly.

Pair Corralation between CompX International and ADT

Considering the 90-day investment horizon CompX International is expected to under-perform the ADT. In addition to that, CompX International is 1.45 times more volatile than ADT Inc. It trades about -0.13 of its total potential returns per unit of risk. ADT Inc is currently generating about 0.14 per unit of volatility. If you would invest  693.00  in ADT Inc on December 26, 2024 and sell it today you would earn a total of  115.00  from holding ADT Inc or generate 16.59% return on investment over 90 days.

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

CompX International  vs.  ADT Inc

CompX International

Risk-Adjusted Performance

Very Weak

Over the last 90 days CompX International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

ADT Inc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ADT Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady fundamental indicators, ADT unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CompX International and ADT

The main advantage of trading using opposite CompX International and ADT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CompX International 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 CompX International 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.