Correlation Between Compagnie and Legrand SA

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

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

Diversification Opportunities for Compagnie and Legrand SA

-0.53

Correlation Coefficient

Compagnie  Legrand SA

Excellent diversification

The 3 months correlation between Compagnie and Legrand is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Compagnie de Saint Gobain and Legrand SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legrand SA and Compagnie 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 Compagnie de Saint Gobain 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 Compagnie i.e., Compagnie and Legrand SA go up and down completely randomly.

Pair Corralation between Compagnie and Legrand SA

Assuming the 90 days trading horizon Compagnie de Saint Gobain is expected to generate 1.05 times more return on investment than Legrand SA. However, Compagnie is 1.05 times more volatile than Legrand SA. It trades about 0.01 of its potential returns per unit of risk. Legrand SA is currently generating about -0.17 per unit of risk. If you would invest  8,910  in Compagnie de Saint Gobain on September 12, 2024 and sell it today you would earn a total of  8.00  from holding Compagnie de Saint Gobain or generate 0.09% return on investment over 90 days.

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

Compagnie de Saint Gobain  vs.  Legrand SA

Compagnie de Saint

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Compagnie de Saint Gobain are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Compagnie sustained 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 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.

Pair Trading with Compagnie and Legrand SA

The main advantage of trading using opposite Compagnie and Legrand SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Compagnie 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 Compagnie de Saint Gobain 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.