Correlation Between Legrand SA and Advanced Energy

Can any of the company-specific risk be diversified away by investing in both Legrand SA and Advanced Energy 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 Advanced Energy 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 Advanced Energy Industries, you can compare the effects of market volatilities on Legrand SA and Advanced Energy 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 Advanced Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legrand SA and Advanced Energy.

Diversification Opportunities for Legrand SA and Advanced Energy

-0.2

Correlation Coefficient

Legrand SA  Advanced Energy

Good diversification

The 3 months correlation between Legrand and Advanced is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Legrand SA ADR and Advanced Energy Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Energy Indu 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 Advanced Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Energy Indu has no effect on the direction of Legrand SA i.e., Legrand SA and Advanced Energy go up and down completely randomly.

Pair Corralation between Legrand SA and Advanced Energy

Assuming the 90 days horizon Legrand SA ADR is expected to generate 0.68 times more return on investment than Advanced Energy. However, Legrand SA ADR is 1.47 times less risky than Advanced Energy. It trades about 0.08 of its potential returns per unit of risk. Advanced Energy Industries is currently generating about -0.08 per unit of risk. If you would invest  1,940  in Legrand SA ADR on December 30, 2024 and sell it today you would earn a total of  192.00  from holding Legrand SA ADR or generate 9.9% return on investment over 90 days.

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

Legrand SA ADR  vs.  Advanced Energy Industries

Legrand SA ADR

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Legrand SA ADR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental indicators, Legrand SA may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Advanced Energy Indu

Risk-Adjusted Performance

Very Weak

Over the last 90 days Advanced Energy Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's forward indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Legrand SA and Advanced Energy

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

The idea behind Legrand SA ADR and Advanced Energy Industries 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.