Correlation Between Advanced Energy and Legrand SA

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

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

Diversification Opportunities for Advanced Energy and Legrand SA

-0.45

Correlation Coefficient

Advanced Energy  Legrand SA

Very good diversification

The 3 months correlation between Advanced and Legrand is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Energy Industries and Legrand SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legrand SA and Advanced Energy 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 Advanced Energy Industries 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 Advanced Energy i.e., Advanced Energy and Legrand SA go up and down completely randomly.

Pair Corralation between Advanced Energy and Legrand SA

Given the investment horizon of 90 days Advanced Energy Industries is expected to generate 1.38 times more return on investment than Legrand SA. However, Advanced Energy is 1.38 times more volatile than Legrand SA. It trades about 0.16 of its potential returns per unit of risk. Legrand SA is currently generating about -0.08 per unit of risk. If you would invest  9,854  in Advanced Energy Industries on September 13, 2024 and sell it today you would earn a total of  1,930  from holding Advanced Energy Industries or generate 19.59% return on investment over 90 days.

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

Advanced Energy Industries  vs.  Legrand SA

Advanced Energy Indu

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Energy Industries are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent forward indicators, Advanced Energy unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Advanced Energy and Legrand SA

The main advantage of trading using opposite Advanced Energy and Legrand SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advanced Energy 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 Advanced Energy Industries 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.