Correlation Between MSA Safety and Resideo Technologies

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

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

Diversification Opportunities for MSA Safety and Resideo Technologies

0.75

Correlation Coefficient

MSA Safety  Resideo Technologies

Poor diversification

The 3 months correlation between MSA and Resideo is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding MSA Safety and Resideo Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Resideo Technologies and MSA Safety 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 MSA Safety are associated (or correlated) with Resideo Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Resideo Technologies has no effect on the direction of MSA Safety i.e., MSA Safety and Resideo Technologies go up and down completely randomly.

Pair Corralation between MSA Safety and Resideo Technologies

Considering the 90-day investment horizon MSA Safety is expected to generate 0.62 times more return on investment than Resideo Technologies. However, MSA Safety is 1.62 times less risky than Resideo Technologies. It trades about 0.06 of its potential returns per unit of risk. Resideo Technologies is currently generating about -0.14 per unit of risk. If you would invest  18,415  in MSA Safety on January 30, 2024 and sell it today you would earn a total of  463.00  from holding MSA Safety or generate 2.51% return on investment over 90 days.

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

MSA Safety  vs.  Resideo Technologies

MSA Safety

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MSA Safety are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, MSA Safety may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Resideo Technologies

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Resideo Technologies are ranked lower than 6 (%) 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.

Pair Trading with MSA Safety and Resideo Technologies

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

The idea behind MSA Safety and Resideo Technologies 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.

Check out your portfolio center.

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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.