Correlation Between Allegion PLC and SECOM CO

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

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

Diversification Opportunities for Allegion PLC and SECOM CO

-0.09

Correlation Coefficient

Allegion PLC  SECOM CO

Good diversification

The 3 months correlation between Allegion and SECOM is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Allegion PLC and SECOM LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SECOM LTD and Allegion PLC 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 Allegion PLC are associated (or correlated) with SECOM CO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SECOM LTD has no effect on the direction of Allegion PLC i.e., Allegion PLC and SECOM CO go up and down completely randomly.

Pair Corralation between Allegion PLC and SECOM CO

Given the investment horizon of 90 days Allegion PLC is expected to under-perform the SECOM CO. But the stock apears to be less risky and, when comparing its historical volatility, Allegion PLC is 1.02 times less risky than SECOM CO. The stock trades about -0.05 of its potential returns per unit of risk. The SECOM LTD is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  7,280  in SECOM LTD on January 24, 2024 and sell it today you would lose (166.00) from holding SECOM LTD or give up 2.28% of portfolio value over 90 days.

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

Allegion PLC  vs.  SECOM LTD

Allegion PLC

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Allegion PLC are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

SECOM LTD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SECOM LTD has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, SECOM CO is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Allegion PLC and SECOM CO

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

The idea behind Allegion PLC and SECOM LTD 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.