Correlation Between Resideo Technologies and Allegion PLC

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

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

Diversification Opportunities for Resideo Technologies and Allegion PLC

0.92

Correlation Coefficient

Resideo Technologies  Allegion PLC

Almost no diversification

The 3 months correlation between Resideo and Allegion is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Resideo Technologies and Allegion PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegion PLC 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 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 Resideo Technologies i.e., Resideo Technologies and Allegion PLC go up and down completely randomly.

Pair Corralation between Resideo Technologies and Allegion PLC

Given the investment horizon of 90 days Resideo Technologies is expected to under-perform the Allegion PLC. In addition to that, Resideo Technologies is 1.38 times more volatile than Allegion PLC. It trades about -0.31 of its total potential returns per unit of risk. Allegion PLC is currently generating about -0.1 per unit of volatility. If you would invest  14,092  in Allegion PLC on November 27, 2024 and sell it today you would lose (1,101) from holding Allegion PLC or give up 7.81% of portfolio value over 90 days.

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

Resideo Technologies  vs.  Allegion PLC

Resideo Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Resideo Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in March 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Allegion PLC

Risk-Adjusted Performance

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 Resideo Technologies and Allegion PLC

The main advantage of trading using opposite Resideo Technologies and Allegion PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Resideo Technologies 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 Resideo Technologies 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.