Correlation Between ALLEGION and Air Lease

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

By analyzing existing cross correlation between ALLEGION HLDG INC and Air Lease, you can compare the effects of market volatilities on ALLEGION and Air Lease 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 with a short position of Air Lease. Check out your portfolio center. Please also check ongoing floating volatility patterns of ALLEGION and Air Lease.

Diversification Opportunities for ALLEGION and Air Lease

-0.3

Correlation Coefficient

ALLEGION  Air Lease

Very good diversification

The 3 months correlation between ALLEGION and Air is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding ALLEGION HLDG INC and Air Lease in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Lease and ALLEGION 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 HLDG INC are associated (or correlated) with Air Lease. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Lease has no effect on the direction of ALLEGION i.e., ALLEGION and Air Lease go up and down completely randomly.

Pair Corralation between ALLEGION and Air Lease

Assuming the 90 days trading horizon ALLEGION HLDG INC is expected to generate 0.29 times more return on investment than Air Lease. However, ALLEGION HLDG INC is 3.46 times less risky than Air Lease. It trades about -0.14 of its potential returns per unit of risk. Air Lease is currently generating about -0.12 per unit of risk. If you would invest  9,656  in ALLEGION HLDG INC on September 30, 2024 and sell it today you would lose (108.00) from holding ALLEGION HLDG INC or give up 1.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

ALLEGION HLDG INC  vs.  Air Lease

ALLEGION HLDG INC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ALLEGION HLDG INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ALLEGION is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Air Lease

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Air Lease are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile essential indicators, Air Lease may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ALLEGION and Air Lease

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

The idea behind ALLEGION HLDG INC and Air Lease 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.