Correlation Between Pentair Plc and Avery Dennison

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

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

Diversification Opportunities for Pentair Plc and Avery Dennison

0.69

Correlation Coefficient

Pentair Plc  Avery Dennison

Poor diversification

The 3 months correlation between Pentair and Avery is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Pentair plc and Avery Dennison in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avery Dennison and Pentair Plc 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 Pentair plc are associated (or correlated) with Avery Dennison. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avery Dennison has no effect on the direction of Pentair Plc i.e., Pentair Plc and Avery Dennison go up and down completely randomly.

Pair Corralation between Pentair Plc and Avery Dennison

Assuming the 90 days trading horizon Pentair plc is expected to generate 2.56 times more return on investment than Avery Dennison. However, Pentair Plc is 2.56 times more volatile than Avery Dennison. It trades about 0.1 of its potential returns per unit of risk. Avery Dennison is currently generating about 0.04 per unit of risk. If you would invest  23,193  in Pentair plc on October 11, 2024 and sell it today you would earn a total of  38,187  from holding Pentair plc or generate 164.65% return on investment over 90 days.

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

Pentair plc  vs.  Avery Dennison

Pentair plc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair plc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pentair Plc sustained solid returns over the last few months and may actually be approaching a breakup point.

Avery Dennison

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Avery Dennison are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Avery Dennison is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Pentair Plc and Avery Dennison

The main advantage of trading using opposite Pentair Plc and Avery Dennison positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pentair Plc position performs unexpectedly, Avery Dennison 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 Avery Dennison will offset losses from the drop in Avery Dennison's long position.

The idea behind Pentair plc and Avery Dennison 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .