Correlation Between LB Foster and Allegion PLC

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

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

Diversification Opportunities for LB Foster and Allegion PLC

-0.6

Correlation Coefficient

LB Foster  Allegion PLC

Excellent diversification

The 3 months correlation between FSTR and Allegion is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding LB Foster and Allegion PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegion PLC and LB Foster 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 LB Foster are associated (or correlated) with Allegion PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allegion PLC has no effect on the direction of LB Foster i.e., LB Foster and Allegion PLC go up and down completely randomly.

Pair Corralation between LB Foster and Allegion PLC

Given the investment horizon of 90 days LB Foster is expected to generate 2.31 times more return on investment than Allegion PLC. However, LB Foster is 2.31 times more volatile than Allegion PLC. It trades about -0.18 of its potential returns per unit of risk. Allegion PLC is currently generating about -0.46 per unit of risk. If you would invest  2,874  in LB Foster on October 10, 2024 and sell it today you would lose (254.00) from holding LB Foster or give up 8.84% of portfolio value over 90 days.

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

LB Foster  vs.  Allegion PLC

LB Foster

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in LB Foster are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, LB Foster reported solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with LB Foster and Allegion PLC

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

The idea behind LB Foster and Allegion 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 Transaction History module to view history of all your transactions and understand their impact on performance.