Correlation Between Pentair Plc and Home Depot

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

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

Diversification Opportunities for Pentair Plc and Home Depot

0.89

Correlation Coefficient

Pentair Plc  Home Depot

Very poor diversification

The 3 months correlation between Pentair and Home is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Pentair plc and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot 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 Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of Pentair Plc i.e., Pentair Plc and Home Depot go up and down completely randomly.

Pair Corralation between Pentair Plc and Home Depot

Assuming the 90 days trading horizon Pentair plc is expected to generate 1.11 times more return on investment than Home Depot. However, Pentair Plc is 1.11 times more volatile than The Home Depot. It trades about 0.17 of its potential returns per unit of risk. The Home Depot is currently generating about 0.05 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.  The Home Depot

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.

Home Depot

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Home Depot are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong primary indicators, Home Depot is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Pentair Plc and Home Depot

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

The idea behind Pentair plc and The Home Depot 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.