Correlation Between Legrand SA and Mitsubishi Electric

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

Diversification Opportunities for Legrand SA and Mitsubishi Electric

-0.68

Correlation Coefficient

Legrand SA  Mitsubishi Electric

Excellent diversification

The 3 months correlation between Legrand and Mitsubishi is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Legrand SA ADR and Mitsubishi Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsubishi Electric 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 Mitsubishi Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mitsubishi Electric has no effect on the direction of Legrand SA i.e., Legrand SA and Mitsubishi Electric go up and down completely randomly.

Pair Corralation between Legrand SA and Mitsubishi Electric

Assuming the 90 days horizon Legrand SA ADR is expected to under-perform the Mitsubishi Electric. But the pink sheet apears to be less risky and, when comparing its historical volatility, Legrand SA ADR is 2.46 times less risky than Mitsubishi Electric. The pink sheet trades about -0.14 of its potential returns per unit of risk. The Mitsubishi Electric is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,607  in Mitsubishi Electric on September 16, 2024 and sell it today you would earn a total of  156.00  from holding Mitsubishi Electric or generate 9.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.92%
Values	Daily Returns

Legrand SA ADR  vs.  Mitsubishi Electric

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 weak performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Mitsubishi Electric

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mitsubishi Electric are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak essential indicators, Mitsubishi Electric reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Legrand SA and Mitsubishi Electric

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

The idea behind Legrand SA ADR and Mitsubishi Electric 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..