Correlation Between Pentair Plc and Charter Communications

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

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

Diversification Opportunities for Pentair Plc and Charter Communications

0.67

Correlation Coefficient

Pentair Plc  Charter Communications

Poor diversification

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

Pair Corralation between Pentair Plc and Charter Communications

Assuming the 90 days trading horizon Pentair plc is expected to under-perform the Charter Communications. But the stock apears to be less risky and, when comparing its historical volatility, Pentair plc is 4.01 times less risky than Charter Communications. The stock trades about -0.14 of its potential returns per unit of risk. The Charter Communications is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  3,608  in Charter Communications on December 25, 2024 and sell it today you would lose (85.00) from holding Charter Communications or give up 2.36% of portfolio value over 90 days.

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

Pentair plc  vs.  Charter Communications

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 somewhat strong basic indicators, Pentair Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Charter Communications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Charter Communications has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Charter Communications 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 Charter Communications

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

The idea behind Pentair plc and Charter Communications 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.