Correlation Between Legrand SA and Rexel SA

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

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

Diversification Opportunities for Legrand SA and Rexel SA

0.37

Correlation Coefficient

Legrand SA  Rexel SA

Weak diversification

The 3 months correlation between Legrand and Rexel is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Legrand SA and Rexel SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rexel SA 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 are associated (or correlated) with Rexel SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rexel SA has no effect on the direction of Legrand SA i.e., Legrand SA and Rexel SA go up and down completely randomly.

Pair Corralation between Legrand SA and Rexel SA

Assuming the 90 days horizon Legrand SA is expected to generate 0.74 times more return on investment than Rexel SA. However, Legrand SA is 1.36 times less risky than Rexel SA. It trades about -0.01 of its potential returns per unit of risk. Rexel SA is currently generating about -0.03 per unit of risk. If you would invest  9,878  in Legrand SA on September 3, 2024 and sell it today you would lose (390.00) from holding Legrand SA or give up 3.95% of portfolio value over 90 days.

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

Legrand SA  vs.  Rexel SA

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.

Rexel SA

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Rexel SA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Rexel SA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Legrand SA and Rexel SA

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

The idea behind Legrand SA and Rexel 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.