Correlation Between Pentair PLC and SMA Solar

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

By analyzing existing cross correlation between Pentair PLC and SMA Solar Technology, you can compare the effects of market volatilities on Pentair PLC and SMA Solar 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 SMA Solar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pentair PLC and SMA Solar.

Diversification Opportunities for Pentair PLC and SMA Solar

-0.75

Correlation Coefficient

Pentair PLC  SMA Solar

Pay attention - limited upside

The 3 months correlation between Pentair and SMA is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Pentair PLC and SMA Solar Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMA Solar Technology 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 SMA Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMA Solar Technology has no effect on the direction of Pentair PLC i.e., Pentair PLC and SMA Solar go up and down completely randomly.

Pair Corralation between Pentair PLC and SMA Solar

Assuming the 90 days trading horizon Pentair PLC is expected to generate 0.42 times more return on investment than SMA Solar. However, Pentair PLC is 2.39 times less risky than SMA Solar. It trades about 0.1 of its potential returns per unit of risk. SMA Solar Technology is currently generating about -0.1 per unit of risk. If you would invest  7,032  in Pentair PLC on October 9, 2024 and sell it today you would earn a total of  2,861  from holding Pentair PLC or generate 40.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	97.19%
Values	Daily Returns

Pentair PLC  vs.  SMA Solar Technology

Pentair PLC

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair PLC are ranked lower than 2 (%) 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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

SMA Solar Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SMA Solar Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, SMA Solar 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 SMA Solar

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

The idea behind Pentair PLC and SMA Solar Technology 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 Stocks Directory module to find actively traded stocks across global markets.