Correlation Between ADT and CompX International

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

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

Diversification Opportunities for ADT and CompX International

-0.02

Correlation Coefficient

ADT  CompX International

Good diversification

The 3 months correlation between ADT and CompX is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding ADT Inc and CompX International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CompX International and ADT 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 ADT Inc are associated (or correlated) with CompX International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CompX International has no effect on the direction of ADT i.e., ADT and CompX International go up and down completely randomly.

Pair Corralation between ADT and CompX International

Considering the 90-day investment horizon ADT Inc is expected to generate 0.7 times more return on investment than CompX International. However, ADT Inc is 1.43 times less risky than CompX International. It trades about 0.05 of its potential returns per unit of risk. CompX International is currently generating about 0.01 per unit of risk. If you would invest  708.00  in ADT Inc on September 3, 2024 and sell it today you would earn a total of  55.00  from holding ADT Inc or generate 7.77% return on investment over 90 days.

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

ADT Inc  vs.  CompX International

ADT Inc

Risk-Adjusted Performance

4 of 100

Insignificant

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

CompX International

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CompX International are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong forward indicators, CompX International is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ADT and CompX International

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

The idea behind ADT Inc and CompX International 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.