Correlation Between Resideo Technologies and ADT

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

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

Diversification Opportunities for Resideo Technologies and ADT

0.63

Correlation Coefficient

Resideo Technologies  ADT

Poor diversification

The 3 months correlation between Resideo and ADT is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Resideo Technologies and ADT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADT Inc and Resideo Technologies 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 Resideo Technologies 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 Resideo Technologies i.e., Resideo Technologies and ADT go up and down completely randomly.

Pair Corralation between Resideo Technologies and ADT

Given the investment horizon of 90 days Resideo Technologies is expected to generate 2.4 times more return on investment than ADT. However, Resideo Technologies is 2.4 times more volatile than ADT Inc. It trades about 0.55 of its potential returns per unit of risk. ADT Inc is currently generating about 0.21 per unit of risk. If you would invest  1,998  in Resideo Technologies on September 2, 2024 and sell it today you would earn a total of  720.00  from holding Resideo Technologies or generate 36.04% return on investment over 90 days.

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

Resideo Technologies  vs.  ADT Inc

Resideo Technologies

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Resideo Technologies are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Resideo Technologies demonstrated solid returns over the last few months and may actually be approaching a breakup point.

ADT Inc

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ADT Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady fundamental indicators, ADT may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Resideo Technologies and ADT

The main advantage of trading using opposite Resideo Technologies and ADT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Resideo Technologies 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 Resideo Technologies 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.