Correlation Between LBG Media and Pentair PLC

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

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

Diversification Opportunities for LBG Media and Pentair PLC

-0.65

Correlation Coefficient

LBG Media  Pentair PLC

Excellent diversification

The 3 months correlation between LBG and Pentair is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding LBG Media PLC and Pentair PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pentair PLC and LBG Media 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 LBG Media PLC 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 LBG Media i.e., LBG Media and Pentair PLC go up and down completely randomly.

Pair Corralation between LBG Media and Pentair PLC

Assuming the 90 days trading horizon LBG Media PLC is expected to generate 2.31 times more return on investment than Pentair PLC. However, LBG Media is 2.31 times more volatile than Pentair PLC. It trades about 0.15 of its potential returns per unit of risk. Pentair PLC is currently generating about -0.34 per unit of risk. If you would invest  11,800  in LBG Media PLC on October 10, 2024 and sell it today you would earn a total of  900.00  from holding LBG Media PLC or generate 7.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

LBG Media PLC  vs.  Pentair PLC

LBG Media PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LBG Media PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, LBG Media is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pentair PLC

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair PLC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Pentair PLC is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with LBG Media and Pentair PLC

The main advantage of trading using opposite LBG Media and Pentair PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LBG Media 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 LBG Media PLC 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.