Correlation Between Legrand SA and Barloworld

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

Diversification Opportunities for Legrand SA and Barloworld

-0.6

Correlation Coefficient

Legrand SA  Barloworld

Excellent diversification

The 3 months correlation between Legrand and Barloworld is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Legrand SA ADR and Barloworld Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barloworld ADR 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 Barloworld. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barloworld ADR has no effect on the direction of Legrand SA i.e., Legrand SA and Barloworld go up and down completely randomly.

Pair Corralation between Legrand SA and Barloworld

Assuming the 90 days horizon Legrand SA is expected to generate 7.56 times less return on investment than Barloworld. But when comparing it to its historical volatility, Legrand SA ADR is 4.98 times less risky than Barloworld. It trades about 0.03 of its potential returns per unit of risk. Barloworld Ltd ADR is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  479.00  in Barloworld Ltd ADR on October 23, 2024 and sell it today you would earn a total of  134.00  from holding Barloworld Ltd ADR or generate 27.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	71.46%
Values	Daily Returns

Legrand SA ADR  vs.  Barloworld Ltd ADR

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.

Barloworld ADR

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Barloworld Ltd ADR are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Barloworld showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Legrand SA and Barloworld

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

The idea behind Legrand SA ADR and Barloworld Ltd 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..