Correlation Between Pentair Plc and Morgan Stanley

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

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

Diversification Opportunities for Pentair Plc and Morgan Stanley

0.35

Correlation Coefficient

Pentair Plc  Morgan Stanley

Weak diversification

The 3 months correlation between Pentair and Morgan is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Pentair plc and Morgan Stanley in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morgan Stanley 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 Morgan Stanley. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Morgan Stanley has no effect on the direction of Pentair Plc i.e., Pentair Plc and Morgan Stanley go up and down completely randomly.

Pair Corralation between Pentair Plc and Morgan Stanley

Assuming the 90 days trading horizon Pentair plc is expected to generate 0.23 times more return on investment than Morgan Stanley. However, Pentair plc is 4.38 times less risky than Morgan Stanley. It trades about -0.14 of its potential returns per unit of risk. Morgan Stanley is currently generating about -0.08 per unit of risk. If you would invest  62,034  in Pentair plc on December 24, 2024 and sell it today you would lose (2,663) from holding Pentair plc or give up 4.29% of portfolio value over 90 days.

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

Pentair plc  vs.  Morgan Stanley

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 newest stock price disturbance, may contribute to short-term losses for the investors.

Morgan Stanley

Risk-Adjusted Performance

Very Weak

Over the last 90 days Morgan Stanley has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental drivers 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 Morgan Stanley

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

The idea behind Pentair plc and Morgan Stanley 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.