Correlation Between ITT and Pentair PLC

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

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

Diversification Opportunities for ITT and Pentair PLC

0.71

Correlation Coefficient

ITT  Pentair PLC

Poor diversification

The 3 months correlation between ITT and Pentair is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding ITT Inc and Pentair PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pentair PLC and ITT 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 ITT Inc 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 ITT i.e., ITT and Pentair PLC go up and down completely randomly.

Pair Corralation between ITT and Pentair PLC

Considering the 90-day investment horizon ITT Inc is expected to under-perform the Pentair PLC. In addition to that, ITT is 1.1 times more volatile than Pentair PLC. It trades about -0.38 of its total potential returns per unit of risk. Pentair PLC is currently generating about -0.23 per unit of volatility. If you would invest  10,794  in Pentair PLC on September 24, 2024 and sell it today you would lose (599.00) from holding Pentair PLC or give up 5.55% of portfolio value over 90 days.

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

ITT Inc  vs.  Pentair PLC

ITT Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ITT Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, ITT is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pentair PLC

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair PLC are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Pentair PLC is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with ITT and Pentair PLC

The main advantage of trading using opposite ITT and Pentair PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ITT 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 ITT Inc 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.