Correlation Between Pentair PLC and London Stock

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

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

Diversification Opportunities for Pentair PLC and London Stock

0.63

Correlation Coefficient

Pentair PLC  London Stock

Poor diversification

The 3 months correlation between Pentair and London is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Pentair PLC and London Stock Exchange in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on London Stock Exchange 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 London Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of London Stock Exchange has no effect on the direction of Pentair PLC i.e., Pentair PLC and London Stock go up and down completely randomly.

Pair Corralation between Pentair PLC and London Stock

Assuming the 90 days trading horizon Pentair PLC is expected to under-perform the London Stock. But the stock apears to be less risky and, when comparing its historical volatility, Pentair PLC is 1.2 times less risky than London Stock. The stock trades about -0.2 of its potential returns per unit of risk. The London Stock Exchange is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,133,000  in London Stock Exchange on December 25, 2024 and sell it today you would lose (14,500) from holding London Stock Exchange or give up 1.28% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.55%
Values	Daily Returns

Pentair PLC  vs.  London Stock Exchange

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 unsteady 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.

London Stock Exchange

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Pentair PLC and London Stock Exchange 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.