Correlation Between Hitachi Construction and Pentair Plc

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

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

Diversification Opportunities for Hitachi Construction and Pentair Plc

-0.22

Correlation Coefficient

Hitachi Construction  Pentair Plc

Very good diversification

The 3 months correlation between Hitachi and Pentair is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Hitachi Construction Machinery and Pentair plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pentair plc and Hitachi Construction 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 Hitachi Construction Machinery 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 Hitachi Construction i.e., Hitachi Construction and Pentair Plc go up and down completely randomly.

Pair Corralation between Hitachi Construction and Pentair Plc

Assuming the 90 days horizon Hitachi Construction is expected to generate 10.83 times less return on investment than Pentair Plc. In addition to that, Hitachi Construction is 1.64 times more volatile than Pentair plc. It trades about 0.02 of its total potential returns per unit of risk. Pentair plc is currently generating about 0.3 per unit of volatility. If you would invest  8,299  in Pentair plc on September 17, 2024 and sell it today you would earn a total of  2,036  from holding Pentair plc or generate 24.53% return on investment over 90 days.

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

Hitachi Construction Machinery  vs.  Pentair plc

Hitachi Construction

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hitachi Construction Machinery are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Hitachi Construction is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pentair plc

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair plc are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Pentair Plc reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hitachi Construction and Pentair Plc

The main advantage of trading using opposite Hitachi Construction and Pentair Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hitachi Construction 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 Hitachi Construction Machinery 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.