Correlation Between Legrand SA and Sodexo SA

Can any of the company-specific risk be diversified away by investing in both Legrand SA and Sodexo SA 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 Sodexo SA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Legrand SA and Sodexo SA, you can compare the effects of market volatilities on Legrand SA and Sodexo SA 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 Sodexo SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legrand SA and Sodexo SA.

Diversification Opportunities for Legrand SA and Sodexo SA

-0.39

Correlation Coefficient

Legrand SA  Sodexo SA

Very good diversification

The 3 months correlation between Legrand and Sodexo is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Legrand SA and Sodexo SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sodexo SA 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 are associated (or correlated) with Sodexo SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sodexo SA has no effect on the direction of Legrand SA i.e., Legrand SA and Sodexo SA go up and down completely randomly.

Pair Corralation between Legrand SA and Sodexo SA

Assuming the 90 days horizon Legrand SA is expected to under-perform the Sodexo SA. In addition to that, Legrand SA is 1.03 times more volatile than Sodexo SA. It trades about -0.06 of its total potential returns per unit of risk. Sodexo SA is currently generating about -0.01 per unit of volatility. If you would invest  8,020  in Sodexo SA on August 31, 2024 and sell it today you would lose (140.00) from holding Sodexo SA or give up 1.75% of portfolio value over 90 days.

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

Legrand SA  vs.  Sodexo SA

Legrand SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Sodexo SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sodexo SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Sodexo SA 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 Sodexo SA

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

The idea behind Legrand SA and Sodexo SA 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.