Correlation Between Legrand SA and Ocean Power

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

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

Diversification Opportunities for Legrand SA and Ocean Power

-0.56

Correlation Coefficient

Legrand SA  Ocean Power

Excellent diversification

The 3 months correlation between Legrand and Ocean is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Legrand SA ADR and Ocean Power Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ocean Power Technologies and Legrand SA 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 Legrand SA ADR are associated (or correlated) with Ocean Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ocean Power Technologies has no effect on the direction of Legrand SA i.e., Legrand SA and Ocean Power go up and down completely randomly.

Pair Corralation between Legrand SA and Ocean Power

Assuming the 90 days horizon Legrand SA ADR is expected to under-perform the Ocean Power. But the pink sheet apears to be less risky and, when comparing its historical volatility, Legrand SA ADR is 9.49 times less risky than Ocean Power. The pink sheet trades about -0.14 of its potential returns per unit of risk. The Ocean Power Technologies is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  25.00  in Ocean Power Technologies on September 16, 2024 and sell it today you would earn a total of  9.00  from holding Ocean Power Technologies or generate 36.0% return on investment over 90 days.

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

Legrand SA ADR  vs.  Ocean Power Technologies

Legrand SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Legrand SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Ocean Power Technologies

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ocean Power Technologies are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Ocean Power unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Legrand SA and Ocean Power

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

The idea behind Legrand SA ADR and Ocean Power Technologies 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.