Correlation Between Big 5 and Pentair Plc
Can any of the company-specific risk be diversified away by investing in both Big 5 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 Big 5 and Pentair Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Big 5 Sporting and Pentair plc, you can compare the effects of market volatilities on Big 5 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 Big 5 with a short position of Pentair Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big 5 and Pentair Plc.
Diversification Opportunities for Big 5 and Pentair Plc
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Big and Pentair is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and Pentair plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pentair plc and Big 5 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 Big 5 Sporting 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 Big 5 i.e., Big 5 and Pentair Plc go up and down completely randomly.
Pair Corralation between Big 5 and Pentair Plc
Assuming the 90 days horizon Big 5 Sporting is expected to under-perform the Pentair Plc. In addition to that, Big 5 is 2.4 times more volatile than Pentair plc. It trades about -0.26 of its total potential returns per unit of risk. Pentair plc is currently generating about -0.14 per unit of volatility. If you would invest 9,738 in Pentair plc on December 27, 2024 and sell it today you would lose (1,322) from holding Pentair plc or give up 13.58% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Big 5 Sporting vs. Pentair plc
Performance |
Timeline |
Big 5 Sporting |
Pentair plc |
Big 5 and Pentair Plc Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Big 5 and Pentair Plc
The main advantage of trading using opposite Big 5 and Pentair Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big 5 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.Big 5 vs. INTERCONT HOTELS | Big 5 vs. Laureate Education | Big 5 vs. BRAEMAR HOTELS RES | Big 5 vs. STRAYER EDUCATION |
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Check out your portfolio center.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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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