Correlation Between Pentair PLC and Fair Oaks

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

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

Diversification Opportunities for Pentair PLC and Fair Oaks

0.46

Correlation Coefficient

Pentair PLC  Fair Oaks

Very weak diversification

The 3 months correlation between Pentair and Fair is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Pentair PLC and Fair Oaks Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fair Oaks Income 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 Fair Oaks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fair Oaks Income has no effect on the direction of Pentair PLC i.e., Pentair PLC and Fair Oaks go up and down completely randomly.

Pair Corralation between Pentair PLC and Fair Oaks

Assuming the 90 days trading horizon Pentair PLC is expected to generate 2.71 times more return on investment than Fair Oaks. However, Pentair PLC is 2.71 times more volatile than Fair Oaks Income. It trades about 0.31 of its potential returns per unit of risk. Fair Oaks Income is currently generating about 0.12 per unit of risk. If you would invest  8,650  in Pentair PLC on August 31, 2024 and sell it today you would earn a total of  2,262  from holding Pentair PLC or generate 26.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Pentair PLC  vs.  Fair Oaks Income

Pentair PLC

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair PLC are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Pentair PLC unveiled solid returns over the last few months and may actually be approaching a breakup point.

Fair Oaks Income

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fair Oaks Income are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Fair Oaks 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 Pentair PLC and Fair Oaks

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

The idea behind Pentair PLC and Fair Oaks Income 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.