Correlation Between Legrand SA and ABB

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

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

Diversification Opportunities for Legrand SA and ABB

0.29

Correlation Coefficient

Legrand SA  ABB

Modest diversification

The 3 months correlation between Legrand and ABB is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Legrand SA ADR and ABB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB and Legrand SA 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 Legrand SA ADR are associated (or correlated) with ABB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABB has no effect on the direction of Legrand SA i.e., Legrand SA and ABB go up and down completely randomly.

Pair Corralation between Legrand SA and ABB

Assuming the 90 days horizon Legrand SA ADR is expected to under-perform the ABB. But the pink sheet apears to be less risky and, when comparing its historical volatility, Legrand SA ADR is 2.03 times less risky than ABB. The pink sheet trades about -0.11 of its potential returns per unit of risk. The ABB is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  5,642  in ABB on September 12, 2024 and sell it today you would earn a total of  210.00  from holding ABB or generate 3.72% return on investment over 90 days.

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

Legrand SA ADR  vs.  ABB

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.

ABB

Risk-Adjusted Performance

2 of 100

Weak

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

Pair Trading with Legrand SA and ABB

The main advantage of trading using opposite Legrand SA and ABB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Legrand SA position performs unexpectedly, ABB 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 ABB will offset losses from the drop in ABB's long position.

The idea behind Legrand SA ADR and ABB 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.