Correlation Between Legrand SA and Ilika Plc

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

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

Diversification Opportunities for Legrand SA and Ilika Plc

0.53

Correlation Coefficient

Legrand SA  Ilika Plc

Very weak diversification

The 3 months correlation between Legrand and Ilika is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Legrand SA ADR and Ilika plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ilika plc 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 ADR are associated (or correlated) with Ilika Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ilika plc has no effect on the direction of Legrand SA i.e., Legrand SA and Ilika Plc go up and down completely randomly.

Pair Corralation between Legrand SA and Ilika Plc

Assuming the 90 days horizon Legrand SA ADR is expected to generate 0.31 times more return on investment than Ilika Plc. However, Legrand SA ADR is 3.28 times less risky than Ilika Plc. It trades about -0.13 of its potential returns per unit of risk. Ilika plc is currently generating about -0.06 per unit of risk. If you would invest  2,235  in Legrand SA ADR on September 8, 2024 and sell it today you would lose (199.00) from holding Legrand SA ADR or give up 8.9% of portfolio value over 90 days.

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

Legrand SA ADR  vs.  Ilika plc

Legrand SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

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

Ilika plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ilika plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward-looking signals remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Legrand SA and Ilika Plc

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

The idea behind Legrand SA ADR and Ilika plc 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.