Correlation Between Solid Power and Legrand SA

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

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

Diversification Opportunities for Solid Power and Legrand SA

0.81

Correlation Coefficient

Solid Power  Legrand SA

Very poor diversification

The 3 months correlation between Solid and Legrand is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Solid Power 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 Solid Power 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 Solid Power 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 Solid Power i.e., Solid Power and Legrand SA go up and down completely randomly.

Pair Corralation between Solid Power and Legrand SA

Given the investment horizon of 90 days Solid Power is expected to under-perform the Legrand SA. In addition to that, Solid Power is 2.32 times more volatile than Legrand SA ADR. It trades about -0.07 of its total potential returns per unit of risk. Legrand SA ADR is currently generating about -0.14 per unit of volatility. If you would invest  2,292  in Legrand SA ADR on September 15, 2024 and sell it today you would lose (297.00) from holding Legrand SA ADR or give up 12.96% of portfolio value over 90 days.

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

Solid Power  vs.  Legrand SA ADR

Solid Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Solid Power has generated negative risk-adjusted returns adding no value to investors with long positions. Even with abnormal performance in the last few months, the Stock's fundamental indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

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.

Pair Trading with Solid Power and Legrand SA

The main advantage of trading using opposite Solid Power and Legrand SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Solid Power 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 Solid Power 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..