Correlation Between Alfen NV and Legrand SA

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

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

Diversification Opportunities for Alfen NV and Legrand SA

0.23

Correlation Coefficient

Alfen NV  Legrand SA

Modest diversification

The 3 months correlation between Alfen and Legrand is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Alfen NV 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 Alfen NV 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 Alfen NV 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 Alfen NV i.e., Alfen NV and Legrand SA go up and down completely randomly.

Pair Corralation between Alfen NV and Legrand SA

Assuming the 90 days horizon Alfen NV is expected to under-perform the Legrand SA. In addition to that, Alfen NV is 2.26 times more volatile than Legrand SA ADR. It trades about -0.12 of its total potential returns per unit of risk. Legrand SA ADR is currently generating about 0.04 per unit of volatility. If you would invest  1,579  in Legrand SA ADR on August 31, 2024 and sell it today you would earn a total of  406.00  from holding Legrand SA ADR or generate 25.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	86.87%
Values	Daily Returns

Alfen NV  vs.  Legrand SA ADR

Alfen NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alfen NV 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 fundamental drivers remain fairly strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company 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 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 Alfen NV and Legrand SA

The main advantage of trading using opposite Alfen NV and Legrand SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alfen NV 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 Alfen NV 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.