Correlation Between Legrand SA and Solid Power

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

Diversification Opportunities for Legrand SA and Solid Power

-0.2

Correlation Coefficient

Legrand SA  Solid Power

Good diversification

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

Pair Corralation between Legrand SA and Solid Power

Assuming the 90 days horizon Legrand SA is expected to generate 1.37 times less return on investment than Solid Power. But when comparing it to its historical volatility, Legrand SA ADR is 3.4 times less risky than Solid Power. It trades about 0.1 of its potential returns per unit of risk. Solid Power is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  116.00  in Solid Power on November 29, 2024 and sell it today you would earn a total of  5.00  from holding Solid Power or generate 4.31% 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.  Solid Power

Legrand SA ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Legrand SA ADR are ranked lower than 8 (%) 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 March 2025.

Solid Power

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Solid Power are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile fundamental indicators, Solid Power reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Legrand SA and Solid Power

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

The idea behind Legrand SA ADR and Solid Power 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.