Correlation Between American Public and Pentair Plc

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

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

Diversification Opportunities for American Public and Pentair Plc

0.92

Correlation Coefficient

American Public  Pentair Plc

Almost no diversification

The 3 months correlation between American and Pentair is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding American Public Education and Pentair plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pentair plc and American Public 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 American Public Education 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 American Public i.e., American Public and Pentair Plc go up and down completely randomly.

Pair Corralation between American Public and Pentair Plc

Assuming the 90 days horizon American Public Education is expected to generate 1.56 times more return on investment than Pentair Plc. However, American Public is 1.56 times more volatile than Pentair plc. It trades about 0.11 of its potential returns per unit of risk. Pentair plc is currently generating about -0.27 per unit of risk. If you would invest  1,980  in American Public Education on October 5, 2024 and sell it today you would earn a total of  80.00  from holding American Public Education or generate 4.04% return on investment over 90 days.

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

American Public Education  vs.  Pentair plc

American Public Education

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days American Public Education has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, American Public reported solid returns over the last few months and may actually be approaching a breakup point.

Pentair plc

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Pentair plc has generated negative risk-adjusted returns adding no value to investors with long positions. 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 American Public and Pentair Plc

The main advantage of trading using opposite American Public and Pentair Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Public 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 American Public Education 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.