Correlation Between Ford and Legrand SA

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

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

Diversification Opportunities for Ford and Legrand SA

0.23

Correlation Coefficient

Ford  Legrand SA

Modest diversification

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

Pair Corralation between Ford and Legrand SA

Taking into account the 90-day investment horizon Ford is expected to generate 3.52 times less return on investment than Legrand SA. But when comparing it to its historical volatility, Ford Motor is 1.06 times less risky than Legrand SA. It trades about 0.03 of its potential returns per unit of risk. Legrand SA ADR is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,952  in Legrand SA ADR on December 27, 2024 and sell it today you would earn a total of  203.00  from holding Legrand SA ADR or generate 10.4% return on investment over 90 days.

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

Ford Motor  vs.  Legrand SA ADR

Ford Motor

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Ford is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Legrand SA ADR

Risk-Adjusted Performance

OK

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 fairly weak fundamental indicators, Legrand SA may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Ford and Legrand SA

The main advantage of trading using opposite Ford and Legrand SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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 Ford Motor 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.