Correlation Between ADT and MSA Safety
Can any of the company-specific risk be diversified away by investing in both ADT and MSA Safety 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 MSA Safety into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ADT Inc and MSA Safety Incorporated, you can compare the effects of market volatilities on ADT and MSA Safety 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 MSA Safety. Check out your portfolio center. Please also check ongoing floating volatility patterns of ADT and MSA Safety.
Diversification Opportunities for ADT and MSA Safety
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between ADT and MSA is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding ADT Inc and MSA Safety Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MSA Safety 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 MSA Safety. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MSA Safety has no effect on the direction of ADT i.e., ADT and MSA Safety go up and down completely randomly.
Pair Corralation between ADT and MSA Safety
Assuming the 90 days horizon ADT Inc is expected to under-perform the MSA Safety. But the stock apears to be less risky and, when comparing its historical volatility, ADT Inc is 1.54 times less risky than MSA Safety. The stock trades about -0.45 of its potential returns per unit of risk. The MSA Safety Incorporated is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest 16,600 in MSA Safety Incorporated on September 28, 2024 and sell it today you would lose (700.00) from holding MSA Safety Incorporated or give up 4.22% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
ADT Inc vs. MSA Safety Incorporated
Performance |
| Timeline |
| ADT Inc |
| MSA Safety |
ADT and MSA Safety Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ADT and MSA Safety
The main advantage of trading using opposite ADT and MSA Safety positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ADT position performs unexpectedly, MSA Safety 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 MSA Safety will offset losses from the drop in MSA Safety's long position.The idea behind ADT Inc and MSA Safety Incorporated 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.| MSA Safety vs. ABB PAR AB | MSA Safety vs. ASSA ABLOY AB | MSA Safety vs. SECOM LTD | MSA Safety vs. Halma plc |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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