Correlation Between General Motors and Pentair PLC

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

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

Diversification Opportunities for General Motors and Pentair PLC

0.69

Correlation Coefficient

General Motors  Pentair PLC

Poor diversification

The 3 months correlation between General and Pentair is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding General Motors Co and Pentair PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pentair PLC and General Motors 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 General Motors Co are associated (or correlated) with Pentair PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pentair PLC has no effect on the direction of General Motors i.e., General Motors and Pentair PLC go up and down completely randomly.

Pair Corralation between General Motors and Pentair PLC

Assuming the 90 days trading horizon General Motors Co is expected to generate 2.15 times more return on investment than Pentair PLC. However, General Motors is 2.15 times more volatile than Pentair PLC. It trades about 0.1 of its potential returns per unit of risk. Pentair PLC is currently generating about 0.08 per unit of risk. If you would invest  4,565  in General Motors Co on October 6, 2024 and sell it today you would earn a total of  590.00  from holding General Motors Co or generate 12.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

General Motors Co  vs.  Pentair PLC

General Motors

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, General Motors unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pentair PLC

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair PLC are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Pentair PLC is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with General Motors and Pentair PLC

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

The idea behind General Motors Co and Pentair 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.