Correlation Between Allegion PLC and HE Equipment

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

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

Diversification Opportunities for Allegion PLC and HE Equipment

-0.34

Correlation Coefficient

Allegion PLC  HE Equipment

Very good diversification

The 3 months correlation between Allegion and HEES is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Allegion PLC and HE Equipment Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HE Equipment Services 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 HE Equipment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HE Equipment Services has no effect on the direction of Allegion PLC i.e., Allegion PLC and HE Equipment go up and down completely randomly.

Pair Corralation between Allegion PLC and HE Equipment

Given the investment horizon of 90 days Allegion PLC is expected to generate 3.83 times more return on investment than HE Equipment. However, Allegion PLC is 3.83 times more volatile than HE Equipment Services. It trades about 0.29 of its potential returns per unit of risk. HE Equipment Services is currently generating about 0.0 per unit of risk. If you would invest  12,208  in Allegion PLC on February 9, 2025 and sell it today you would earn a total of  1,977  from holding Allegion PLC or generate 16.19% return on investment over 90 days.

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

Allegion PLC  vs.  HE Equipment Services

Allegion PLC

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Allegion PLC are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak essential indicators, Allegion PLC may actually be approaching a critical reversion point that can send shares even higher in June 2025.

HE Equipment Services

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HE Equipment Services are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, HE Equipment may actually be approaching a critical reversion point that can send shares even higher in June 2025.

Pair Trading with Allegion PLC and HE Equipment

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

The idea behind Allegion PLC and HE Equipment Services 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.