Correlation Between Aeroports and Legrand SA

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

By analyzing existing cross correlation between Aeroports de Paris and Legrand SA, you can compare the effects of market volatilities on Aeroports and Legrand SA 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 Aeroports with a short position of Legrand SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aeroports and Legrand SA.

Diversification Opportunities for Aeroports and Legrand SA

0.3

Correlation Coefficient

Aeroports  Legrand SA

Weak diversification

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

Pair Corralation between Aeroports and Legrand SA

Assuming the 90 days trading horizon Aeroports de Paris is expected to under-perform the Legrand SA. In addition to that, Aeroports is 1.05 times more volatile than Legrand SA. It trades about -0.06 of its total potential returns per unit of risk. Legrand SA is currently generating about -0.02 per unit of volatility. If you would invest  9,770  in Legrand SA on September 5, 2024 and sell it today you would lose (296.00) from holding Legrand SA or give up 3.03% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Aeroports de Paris  vs.  Legrand SA

Aeroports de Paris

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aeroports de Paris has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Legrand SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Aeroports and Legrand SA

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

The idea behind Aeroports de Paris and Legrand SA 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .