Correlation Between Signify NV and Legrand SA

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

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

Diversification Opportunities for Signify NV and Legrand SA

-0.11

Correlation Coefficient

Signify NV  Legrand SA

Good diversification

The 3 months correlation between Signify and Legrand is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Signify NV and Legrand SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legrand SA and Signify NV 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 Signify NV 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 Signify NV i.e., Signify NV and Legrand SA go up and down completely randomly.

Pair Corralation between Signify NV and Legrand SA

Assuming the 90 days horizon Signify NV is expected to generate 3.48 times less return on investment than Legrand SA. But when comparing it to its historical volatility, Signify NV is 1.19 times less risky than Legrand SA. It trades about 0.04 of its potential returns per unit of risk. Legrand SA is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  9,890  in Legrand SA on December 30, 2024 and sell it today you would earn a total of  1,460  from holding Legrand SA or generate 14.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.55%
Values	Daily Returns

Signify NV  vs.  Legrand SA

Signify NV

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Signify NV are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Legrand SA

Risk-Adjusted Performance

OK

Over the last 90 days Legrand SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly weak basic indicators, Legrand SA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Signify NV and Legrand SA

The main advantage of trading using opposite Signify NV and Legrand SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Signify NV 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 Signify NV 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.