Correlation Between CompX International and Allegion PLC

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

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

Diversification Opportunities for CompX International and Allegion PLC

0.49

Correlation Coefficient

CompX International  Allegion PLC

Very weak diversification

The 3 months correlation between CompX and Allegion is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding CompX International and Allegion PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegion PLC 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 Allegion PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allegion PLC has no effect on the direction of CompX International i.e., CompX International and Allegion PLC go up and down completely randomly.

Pair Corralation between CompX International and Allegion PLC

Considering the 90-day investment horizon CompX International is expected to generate 1.28 times less return on investment than Allegion PLC. In addition to that, CompX International is 3.88 times more volatile than Allegion PLC. It trades about 0.01 of its total potential returns per unit of risk. Allegion PLC is currently generating about 0.06 per unit of volatility. If you would invest  13,654  in Allegion PLC on August 31, 2024 and sell it today you would earn a total of  487.00  from holding Allegion PLC or generate 3.57% return on investment over 90 days.

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

CompX International  vs.  Allegion PLC

CompX International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CompX International has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Allegion PLC

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Allegion PLC are ranked lower than 4 (%) 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.

Pair Trading with CompX International and Allegion PLC

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

The idea behind CompX International and Allegion PLC 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.