Correlation Between Mitsubishi Electric and Legrand SA

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

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

Diversification Opportunities for Mitsubishi Electric and Legrand SA

-0.52

Correlation Coefficient

Mitsubishi Electric  Legrand SA

Excellent diversification

The 3 months correlation between Mitsubishi and Legrand is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Mitsubishi Electric and Legrand SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legrand SA ADR and Mitsubishi Electric 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 Mitsubishi Electric 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 ADR has no effect on the direction of Mitsubishi Electric i.e., Mitsubishi Electric and Legrand SA go up and down completely randomly.

Pair Corralation between Mitsubishi Electric and Legrand SA

Assuming the 90 days horizon Mitsubishi Electric is expected to generate 2.58 times more return on investment than Legrand SA. However, Mitsubishi Electric is 2.58 times more volatile than Legrand SA ADR. It trades about 0.04 of its potential returns per unit of risk. Legrand SA ADR is currently generating about -0.11 per unit of risk. If you would invest  1,657  in Mitsubishi Electric on August 31, 2024 and sell it today you would earn a total of  84.00  from holding Mitsubishi Electric or generate 5.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.83%
Values	Daily Returns

Mitsubishi Electric  vs.  Legrand SA ADR

Mitsubishi Electric

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mitsubishi Electric are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak essential indicators, Mitsubishi Electric may actually be approaching a critical reversion point that can send shares even higher in December 2024.

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 latest fragile performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Mitsubishi Electric and Legrand SA

The main advantage of trading using opposite Mitsubishi Electric and Legrand SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mitsubishi Electric 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 Mitsubishi Electric and Legrand SA ADR 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.