Correlation Between Pentair PLC and American Homes

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

By analyzing existing cross correlation between Pentair PLC and American Homes 4, you can compare the effects of market volatilities on Pentair PLC and American Homes 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 Pentair PLC with a short position of American Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pentair PLC and American Homes.

Diversification Opportunities for Pentair PLC and American Homes

0.1

Correlation Coefficient

Pentair PLC  American Homes

Average diversification

The 3 months correlation between Pentair and American is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Pentair PLC and American Homes 4 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Homes 4 and Pentair PLC 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 Pentair PLC are associated (or correlated) with American Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Homes 4 has no effect on the direction of Pentair PLC i.e., Pentair PLC and American Homes go up and down completely randomly.

Pair Corralation between Pentair PLC and American Homes

Assuming the 90 days trading horizon Pentair PLC is expected to under-perform the American Homes. But the stock apears to be less risky and, when comparing its historical volatility, Pentair PLC is 1.11 times less risky than American Homes. The stock trades about -0.2 of its potential returns per unit of risk. The American Homes 4 is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  3,662  in American Homes 4 on December 24, 2024 and sell it today you would lose (29.00) from holding American Homes 4 or give up 0.79% of portfolio value over 90 days.

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

Pentair PLC  vs.  American Homes 4

Pentair PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pentair PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

American Homes 4

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Homes 4 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, American Homes is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Pentair PLC and American Homes

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

The idea behind Pentair PLC and American Homes 4 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.