Correlation Between CompX International and ADT

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

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

Diversification Opportunities for CompX International and ADT

-0.02

Correlation Coefficient

CompX International  ADT

Good diversification

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

Pair Corralation between CompX International and ADT

Considering the 90-day investment horizon CompX International is expected to generate 2.78 times less return on investment than ADT. In addition to that, CompX International is 1.43 times more volatile than ADT Inc. It trades about 0.01 of its total potential returns per unit of risk. ADT Inc is currently generating about 0.05 per unit of volatility. If you would invest  708.00  in ADT Inc on September 2, 2024 and sell it today you would earn a total of  54.00  from holding ADT Inc or generate 7.63% return on investment over 90 days.

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

CompX International  vs.  ADT Inc

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.

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.

Pair Trading with CompX International and ADT

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

The idea behind CompX International and ADT Inc 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 Stocks Directory module to find actively traded stocks across global markets.