Correlation Between China Carbon and Legrand SA

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

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

Diversification Opportunities for China Carbon and Legrand SA

0.0

Correlation Coefficient

China Carbon  Legrand SA

Pay attention - limited upside

The 3 months correlation between China and Legrand is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding China Carbon Graphit 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 China Carbon 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 China Carbon Graphit 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 China Carbon i.e., China Carbon and Legrand SA go up and down completely randomly.

Pair Corralation between China Carbon and Legrand SA

If you would invest  1,968  in Legrand SA ADR on December 26, 2024 and sell it today you would earn a total of  274.00  from holding Legrand SA ADR or generate 13.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

China Carbon Graphit  vs.  Legrand SA ADR

China Carbon Graphit

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Carbon Graphit has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, China Carbon is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Legrand SA ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Legrand SA ADR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental indicators, Legrand SA showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Carbon and Legrand SA

The main advantage of trading using opposite China Carbon and Legrand SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Carbon 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 China Carbon Graphit 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.