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 Co 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

0.24

Correlation Coefficient

Allegion PLC  Secom Co

Modest diversification

The 3 months correlation between Allegion and Secom is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Allegion PLC and Secom Co Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Secom Co 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 Co 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 generate 1.28 times more return on investment than Secom Co. However, Allegion PLC is 1.28 times more volatile than Secom Co Ltd. It trades about 0.03 of its potential returns per unit of risk. Secom Co Ltd is currently generating about 0.01 per unit of risk. If you would invest  10,904  in Allegion PLC on January 26, 2024 and sell it today you would earn a total of  1,750  from holding Allegion PLC or generate 16.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Allegion PLC  vs.  Secom Co 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 Co

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Secom Co Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, Secom Co is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 Co 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.

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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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.