Correlation Between Wendel and Legrand SA

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

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

Diversification Opportunities for Wendel and Legrand SA

0.76

Correlation Coefficient

Wendel  Legrand SA

Poor diversification

The 3 months correlation between Wendel and Legrand is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Wendel and Legrand SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legrand SA and Wendel 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 Wendel 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 Wendel i.e., Wendel and Legrand SA go up and down completely randomly.

Pair Corralation between Wendel and Legrand SA

Assuming the 90 days horizon Wendel is expected to generate 1.65 times less return on investment than Legrand SA. But when comparing it to its historical volatility, Wendel is 1.47 times less risky than Legrand SA. It trades about 0.06 of its potential returns per unit of risk. Legrand SA is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  9,628  in Legrand SA on February 3, 2024 and sell it today you would earn a total of  140.00  from holding Legrand SA or generate 1.45% return on investment over 90 days.

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

Wendel  vs.  Legrand SA

Wendel

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Wendel are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Wendel may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Legrand SA

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Legrand SA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Legrand SA may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Wendel and Legrand SA

The main advantage of trading using opposite Wendel and Legrand SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wendel 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 Wendel 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.