Correlation Between Park Electrochemical and Allegion PLC

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

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

Diversification Opportunities for Park Electrochemical and Allegion PLC

-0.24

Correlation Coefficient

Park Electrochemical  Allegion PLC

Very good diversification

The 3 months correlation between Park and Allegion is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Park Electrochemical and Allegion PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegion PLC and Park Electrochemical 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 Park Electrochemical 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 Park Electrochemical i.e., Park Electrochemical and Allegion PLC go up and down completely randomly.

Pair Corralation between Park Electrochemical and Allegion PLC

Considering the 90-day investment horizon Park Electrochemical is expected to generate 1.52 times more return on investment than Allegion PLC. However, Park Electrochemical is 1.52 times more volatile than Allegion PLC. It trades about 0.02 of its potential returns per unit of risk. Allegion PLC is currently generating about 0.02 per unit of risk. If you would invest  1,370  in Park Electrochemical on October 9, 2024 and sell it today you would earn a total of  62.00  from holding Park Electrochemical or generate 4.53% return on investment over 90 days.

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

Park Electrochemical  vs.  Allegion PLC

Park Electrochemical

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Park Electrochemical are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady forward-looking signals, Park Electrochemical may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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.

Pair Trading with Park Electrochemical and Allegion PLC

The main advantage of trading using opposite Park Electrochemical and Allegion PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Park Electrochemical 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 Park Electrochemical 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.