Correlation Between Auto Trader and Pentair Plc

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

By analyzing existing cross correlation between Auto Trader Group and Pentair plc, you can compare the effects of market volatilities on Auto Trader 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 Auto Trader with a short position of Pentair Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Auto Trader and Pentair Plc.

Diversification Opportunities for Auto Trader and Pentair Plc

-0.53

Correlation Coefficient

Auto Trader  Pentair Plc

Excellent diversification

The 3 months correlation between Auto and Pentair is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Auto Trader Group and Pentair plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pentair plc and Auto Trader 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 Auto Trader Group 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 Auto Trader i.e., Auto Trader and Pentair Plc go up and down completely randomly.

Pair Corralation between Auto Trader and Pentair Plc

Assuming the 90 days trading horizon Auto Trader Group is expected to under-perform the Pentair Plc. But the stock apears to be less risky and, when comparing its historical volatility, Auto Trader Group is 1.81 times less risky than Pentair Plc. The stock trades about -0.52 of its potential returns per unit of risk. The Pentair plc is currently generating about -0.18 of returns per unit of risk over similar time horizon. If you would invest  10,235  in Pentair plc on October 10, 2024 and sell it today you would lose (489.00) from holding Pentair plc or give up 4.78% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Auto Trader Group  vs.  Pentair plc

Auto Trader Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Auto Trader Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pentair plc

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair plc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Pentair Plc may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Auto Trader and Pentair Plc

The main advantage of trading using opposite Auto Trader and Pentair Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Auto Trader 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 Auto Trader Group 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.