Correlation Between Pentair Plc and Hormel Foods

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

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

Diversification Opportunities for Pentair Plc and Hormel Foods

0.81

Correlation Coefficient

Pentair Plc  Hormel Foods

Very poor diversification

The 3 months correlation between Pentair and Hormel is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Pentair plc and Hormel Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hormel Foods 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 Hormel Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hormel Foods has no effect on the direction of Pentair Plc i.e., Pentair Plc and Hormel Foods go up and down completely randomly.

Pair Corralation between Pentair Plc and Hormel Foods

Assuming the 90 days trading horizon Pentair plc is expected to generate 1.79 times more return on investment than Hormel Foods. However, Pentair Plc is 1.79 times more volatile than Hormel Foods. It trades about 0.17 of its potential returns per unit of risk. Hormel Foods is currently generating about 0.27 per unit of risk. If you would invest  52,131  in Pentair plc on October 8, 2024 and sell it today you would earn a total of  9,249  from holding Pentair plc or generate 17.74% return on investment over 90 days.

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

Pentair plc  vs.  Hormel Foods

Pentair plc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair plc are ranked lower than 13 (%) 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.

Hormel Foods

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hormel Foods are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hormel Foods sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pentair Plc and Hormel Foods

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

The idea behind Pentair plc and Hormel Foods 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.