Correlation Between Berkshire Hathaway and Pentair Plc

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

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

Diversification Opportunities for Berkshire Hathaway and Pentair Plc

-0.42

Correlation Coefficient

Berkshire Hathaway  Pentair Plc

Very good diversification

The 3 months correlation between Berkshire and Pentair is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Berkshire Hathaway and Pentair plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pentair plc and Berkshire Hathaway 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 Berkshire Hathaway 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 Berkshire Hathaway i.e., Berkshire Hathaway and Pentair Plc go up and down completely randomly.

Pair Corralation between Berkshire Hathaway and Pentair Plc

Assuming the 90 days trading horizon Berkshire Hathaway is expected to generate 3.01 times more return on investment than Pentair Plc. However, Berkshire Hathaway is 3.01 times more volatile than Pentair plc. It trades about 0.08 of its potential returns per unit of risk. Pentair plc is currently generating about -0.14 per unit of risk. If you would invest  14,218  in Berkshire Hathaway on December 26, 2024 and sell it today you would earn a total of  1,033  from holding Berkshire Hathaway or generate 7.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Berkshire Hathaway  vs.  Pentair plc

Berkshire Hathaway

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Berkshire Hathaway may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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. Despite somewhat strong basic indicators, Pentair Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Berkshire Hathaway and Pentair Plc

The main advantage of trading using opposite Berkshire Hathaway and Pentair Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Berkshire Hathaway 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 Berkshire Hathaway 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..