Correlation Between InterContinental and Pentair Plc

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

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

Diversification Opportunities for InterContinental and Pentair Plc

0.93

Correlation Coefficient

InterContinental  Pentair Plc

Almost no diversification

The 3 months correlation between InterContinental and Pentair is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding InterContinental Hotels Group and Pentair plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pentair plc and InterContinental 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 InterContinental Hotels 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 InterContinental i.e., InterContinental and Pentair Plc go up and down completely randomly.

Pair Corralation between InterContinental and Pentair Plc

Assuming the 90 days trading horizon InterContinental Hotels Group is expected to generate 1.18 times more return on investment than Pentair Plc. However, InterContinental is 1.18 times more volatile than Pentair plc. It trades about 0.2 of its potential returns per unit of risk. Pentair plc is currently generating about 0.14 per unit of risk. If you would invest  10,100  in InterContinental Hotels Group on October 10, 2024 and sell it today you would earn a total of  1,900  from holding InterContinental Hotels Group or generate 18.81% return on investment over 90 days.

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

InterContinental Hotels Group  vs.  Pentair plc

InterContinental Hotels

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in InterContinental Hotels Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, InterContinental reported solid returns over the last few months and may actually be approaching a breakup point.

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 InterContinental and Pentair Plc

The main advantage of trading using opposite InterContinental and Pentair Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if InterContinental 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 InterContinental Hotels 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.