Correlation Between NVent Electric and Legrand SA

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

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

Diversification Opportunities for NVent Electric and Legrand SA

0.18

Correlation Coefficient

NVent Electric  Legrand SA

Average diversification

The 3 months correlation between NVent and Legrand is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding nVent Electric PLC and Legrand SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legrand SA and NVent Electric 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 nVent Electric PLC 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 has no effect on the direction of NVent Electric i.e., NVent Electric and Legrand SA go up and down completely randomly.

Pair Corralation between NVent Electric and Legrand SA

Considering the 90-day investment horizon nVent Electric PLC is expected to generate 1.41 times more return on investment than Legrand SA. However, NVent Electric is 1.41 times more volatile than Legrand SA. It trades about 0.07 of its potential returns per unit of risk. Legrand SA is currently generating about 0.04 per unit of risk. If you would invest  3,882  in nVent Electric PLC on October 7, 2024 and sell it today you would earn a total of  3,183  from holding nVent Electric PLC or generate 81.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	60.89%
Values	Daily Returns

nVent Electric PLC  vs.  Legrand SA

nVent Electric PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days nVent Electric PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, NVent Electric is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with NVent Electric and Legrand SA

The main advantage of trading using opposite NVent Electric and Legrand SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NVent Electric 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 nVent Electric PLC and Legrand 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.