Correlation Between Pentair Plc and Marathon Petroleum

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

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

Diversification Opportunities for Pentair Plc and Marathon Petroleum

0.11

Correlation Coefficient

Pentair Plc  Marathon Petroleum

Average diversification

The 3 months correlation between Pentair and Marathon is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Pentair plc and Marathon Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Marathon Petroleum 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 Marathon Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Marathon Petroleum has no effect on the direction of Pentair Plc i.e., Pentair Plc and Marathon Petroleum go up and down completely randomly.

Pair Corralation between Pentair Plc and Marathon Petroleum

Assuming the 90 days trading horizon Pentair plc is expected to under-perform the Marathon Petroleum. But the stock apears to be less risky and, when comparing its historical volatility, Pentair plc is 1.64 times less risky than Marathon Petroleum. The stock trades about -0.33 of its potential returns per unit of risk. The Marathon Petroleum is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  91,500  in Marathon Petroleum on October 10, 2024 and sell it today you would lose (4,908) from holding Marathon Petroleum or give up 5.36% of portfolio value over 90 days.

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

Pentair plc  vs.  Marathon Petroleum

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.

Marathon Petroleum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Marathon Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Pentair Plc and Marathon Petroleum

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

The idea behind Pentair plc and Marathon Petroleum 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.