Correlation Between Legrand SA and Signify NV

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

Diversification Opportunities for Legrand SA and Signify NV

0.42

Correlation Coefficient

Legrand SA  Signify NV

Very weak diversification

The 3 months correlation between Legrand and Signify is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Legrand SA ADR and Signify NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Signify NV 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 Signify NV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Signify NV has no effect on the direction of Legrand SA i.e., Legrand SA and Signify NV go up and down completely randomly.

Pair Corralation between Legrand SA and Signify NV

Assuming the 90 days horizon Legrand SA ADR is expected to under-perform the Signify NV. But the pink sheet apears to be less risky and, when comparing its historical volatility, Legrand SA ADR is 1.38 times less risky than Signify NV. The pink sheet trades about -0.11 of its potential returns per unit of risk. The Signify NV is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,175  in Signify NV on August 31, 2024 and sell it today you would lose (25.00) from holding Signify NV or give up 2.13% of portfolio value over 90 days.

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

Legrand SA ADR  vs.  Signify NV

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.

Signify NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Signify NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Signify NV is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Legrand SA and Signify NV

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

The idea behind Legrand SA ADR and Signify NV 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.