Correlation Between Teradyne and Allegion PLC

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

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

Diversification Opportunities for Teradyne and Allegion PLC

0.44

Correlation Coefficient

Teradyne  Allegion PLC

Very weak diversification

The 3 months correlation between Teradyne and Allegion is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Teradyne and Allegion PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegion PLC and Teradyne 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 Teradyne 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 Teradyne i.e., Teradyne and Allegion PLC go up and down completely randomly.

Pair Corralation between Teradyne and Allegion PLC

Considering the 90-day investment horizon Teradyne is expected to under-perform the Allegion PLC. In addition to that, Teradyne is 2.09 times more volatile than Allegion PLC. It trades about -0.17 of its total potential returns per unit of risk. Allegion PLC is currently generating about -0.02 per unit of volatility. If you would invest  13,159  in Allegion PLC on December 21, 2024 and sell it today you would lose (387.00) from holding Allegion PLC or give up 2.94% of portfolio value over 90 days.

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

Teradyne  vs.  Allegion PLC

Teradyne

Risk-Adjusted Performance

Very Weak

Over the last 90 days Teradyne has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's technical and fundamental indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

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 rather sound essential indicators, Allegion PLC is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Teradyne and Allegion PLC

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