Correlation Between Microsoft and Legrand SA

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

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

Diversification Opportunities for Microsoft and Legrand SA

-0.68

Correlation Coefficient

Microsoft  Legrand SA

Excellent diversification

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

Pair Corralation between Microsoft and Legrand SA

Given the investment horizon of 90 days Microsoft is expected to under-perform the Legrand SA. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.37 times less risky than Legrand SA. The stock trades about -0.11 of its potential returns per unit of risk. The Legrand SA ADR is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,940  in Legrand SA ADR on December 30, 2024 and sell it today you would earn a total of  192.00  from holding Legrand SA ADR or generate 9.9% return on investment over 90 days.

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

Microsoft  vs.  Legrand SA ADR

Microsoft

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Legrand SA ADR

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Legrand SA ADR are ranked lower than 6 (%) 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 April 2025.

Pair Trading with Microsoft and Legrand SA

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

The idea behind Microsoft and Legrand SA 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.