Correlation Between Pentair Plc and Ares Management

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

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

Diversification Opportunities for Pentair Plc and Ares Management

0.67

Correlation Coefficient

Pentair Plc  Ares Management

Poor diversification

The 3 months correlation between Pentair and Ares is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Pentair plc and Ares Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares Management 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 Ares Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ares Management has no effect on the direction of Pentair Plc i.e., Pentair Plc and Ares Management go up and down completely randomly.

Pair Corralation between Pentair Plc and Ares Management

Assuming the 90 days trading horizon Pentair plc is expected to under-perform the Ares Management. But the stock apears to be less risky and, when comparing its historical volatility, Pentair plc is 4.12 times less risky than Ares Management. The stock trades about -0.11 of its potential returns per unit of risk. The Ares Management is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  11,208  in Ares Management on October 26, 2024 and sell it today you would earn a total of  308.00  from holding Ares Management or generate 2.75% 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.  Ares Management

Pentair plc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair plc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pentair Plc may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Ares Management

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Management are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ares Management sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pentair Plc and Ares Management

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

The idea behind Pentair plc and Ares Management 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.

Check out your portfolio center.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.