Correlation Between Renesas Electronics and Pentair Plc

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

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

Diversification Opportunities for Renesas Electronics and Pentair Plc

-0.39

Correlation Coefficient

Renesas Electronics  Pentair Plc

Very good diversification

The 3 months correlation between Renesas and Pentair is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Renesas Electronics and Pentair plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pentair plc and Renesas Electronics 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 Renesas Electronics 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 Renesas Electronics i.e., Renesas Electronics and Pentair Plc go up and down completely randomly.

Pair Corralation between Renesas Electronics and Pentair Plc

Assuming the 90 days horizon Renesas Electronics is expected to generate 2.28 times more return on investment than Pentair Plc. However, Renesas Electronics is 2.28 times more volatile than Pentair plc. It trades about 0.09 of its potential returns per unit of risk. Pentair plc is currently generating about -0.19 per unit of risk. If you would invest  1,213  in Renesas Electronics on December 22, 2024 and sell it today you would earn a total of  196.00  from holding Renesas Electronics or generate 16.16% return on investment over 90 days.

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

Renesas Electronics  vs.  Pentair plc

Renesas Electronics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Renesas Electronics are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Renesas Electronics reported solid returns over the last few months and may actually be approaching a breakup point.

Pentair plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pentair plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Renesas Electronics and Pentair Plc

The main advantage of trading using opposite Renesas Electronics and Pentair Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Renesas Electronics 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 Renesas Electronics 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.