Correlation Between Pentair Plc and Citigroup

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

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

Diversification Opportunities for Pentair Plc and Citigroup

0.46

Correlation Coefficient

Pentair Plc  Citigroup

Very weak diversification

The 3 months correlation between Pentair and Citigroup is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Pentair plc and Citigroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citigroup 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 Citigroup. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citigroup has no effect on the direction of Pentair Plc i.e., Pentair Plc and Citigroup go up and down completely randomly.

Pair Corralation between Pentair Plc and Citigroup

Assuming the 90 days trading horizon Pentair Plc is expected to generate 1.7 times less return on investment than Citigroup. But when comparing it to its historical volatility, Pentair plc is 1.13 times less risky than Citigroup. It trades about 0.14 of its potential returns per unit of risk. Citigroup is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  5,936  in Citigroup on October 9, 2024 and sell it today you would earn a total of  1,481  from holding Citigroup or generate 24.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.31%
Values	Daily Returns

Pentair plc  vs.  Citigroup

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.

Citigroup

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Citigroup sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pentair Plc and Citigroup

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

The idea behind Pentair plc and Citigroup 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.