Correlation Between Allegion PLC and Resideo Technologies

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

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

Diversification Opportunities for Allegion PLC and Resideo Technologies

0.56

Correlation Coefficient

Allegion PLC  Resideo Technologies

Very weak diversification

The 3 months correlation between Allegion and Resideo is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Allegion PLC and Resideo Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Resideo Technologies 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 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 Allegion PLC i.e., Allegion PLC and Resideo Technologies go up and down completely randomly.

Pair Corralation between Allegion PLC and Resideo Technologies

Given the investment horizon of 90 days Allegion PLC is expected to generate 3.75 times less return on investment than Resideo Technologies. But when comparing it to its historical volatility, Allegion PLC is 2.33 times less risky than Resideo Technologies. It trades about 0.13 of its potential returns per unit of risk. Resideo Technologies is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,843  in Resideo Technologies on August 14, 2024 and sell it today you would earn a total of  653.00  from holding Resideo Technologies or generate 35.43% return on investment over 90 days.

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

Allegion PLC  vs.  Resideo Technologies

Allegion PLC

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Allegion PLC are ranked lower than 9 (%) 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 December 2024.

Resideo Technologies

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Resideo Technologies are ranked lower than 16 (%) 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 Allegion PLC and Resideo Technologies

The main advantage of trading using opposite Allegion PLC and Resideo Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Allegion PLC 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 Allegion PLC 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.

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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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.