Correlation Between Legrand SA and Powerstorm Holdings

Can any of the company-specific risk be diversified away by investing in both Legrand SA and Powerstorm Holdings 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 Powerstorm Holdings 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 Powerstorm Holdings, you can compare the effects of market volatilities on Legrand SA and Powerstorm Holdings 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 Powerstorm Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legrand SA and Powerstorm Holdings.

Diversification Opportunities for Legrand SA and Powerstorm Holdings

0.83

Correlation Coefficient

Legrand SA  Powerstorm Holdings

Very poor diversification

The 3 months correlation between Legrand and Powerstorm is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Legrand SA ADR and Powerstorm Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Powerstorm Holdings 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 Powerstorm Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Powerstorm Holdings has no effect on the direction of Legrand SA i.e., Legrand SA and Powerstorm Holdings go up and down completely randomly.

Pair Corralation between Legrand SA and Powerstorm Holdings

Assuming the 90 days horizon Legrand SA ADR is expected to under-perform the Powerstorm Holdings. But the pink sheet apears to be less risky and, when comparing its historical volatility, Legrand SA ADR is 5.82 times less risky than Powerstorm Holdings. The pink sheet trades about -0.2 of its potential returns per unit of risk. The Powerstorm Holdings is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  2.02  in Powerstorm Holdings on September 22, 2024 and sell it today you would lose (0.72) from holding Powerstorm Holdings or give up 35.64% of portfolio value over 90 days.

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

Legrand SA ADR  vs.  Powerstorm Holdings

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 fragile 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.

Powerstorm Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Powerstorm Holdings 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 basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Legrand SA and Powerstorm Holdings

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

The idea behind Legrand SA ADR and Powerstorm Holdings 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.