Correlation Between Stepan and Allegion PLC
Can any of the company-specific risk be diversified away by investing in both Stepan 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 Stepan and Allegion PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stepan Company and Allegion PLC, you can compare the effects of market volatilities on Stepan 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 Stepan with a short position of Allegion PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepan and Allegion PLC.
Diversification Opportunities for Stepan and Allegion PLC
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Stepan and Allegion is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Allegion PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegion PLC and Stepan 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 Stepan Company 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 Stepan i.e., Stepan and Allegion PLC go up and down completely randomly.
Pair Corralation between Stepan and Allegion PLC
Considering the 90-day investment horizon Stepan Company is expected to under-perform the Allegion PLC. In addition to that, Stepan is 1.25 times more volatile than Allegion PLC. It trades about -0.03 of its total potential returns per unit of risk. Allegion PLC is currently generating about 0.04 per unit of volatility. If you would invest 10,314 in Allegion PLC on November 1, 2024 and sell it today you would earn a total of 3,038 from holding Allegion PLC or generate 29.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Stepan Company vs. Allegion PLC
Performance |
| Timeline |
| Stepan Company |
| Allegion PLC |
Stepan and Allegion PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stepan and Allegion PLC
The main advantage of trading using opposite Stepan and Allegion PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan 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 Stepan Company 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.| Allegion PLC vs. MSA Safety | Allegion PLC vs. Resideo Technologies | Allegion PLC vs. NL Industries | Allegion PLC vs. Brady |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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