Correlation Between Pentair Plc and Snowflake

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

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

Diversification Opportunities for Pentair Plc and Snowflake

0.16

Correlation Coefficient

Pentair Plc  Snowflake

Average diversification

The 3 months correlation between Pentair and Snowflake is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Pentair plc and Snowflake in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Snowflake 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 Snowflake. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Snowflake has no effect on the direction of Pentair Plc i.e., Pentair Plc and Snowflake go up and down completely randomly.

Pair Corralation between Pentair Plc and Snowflake

Assuming the 90 days trading horizon Pentair plc is expected to generate 0.17 times more return on investment than Snowflake. However, Pentair plc is 5.72 times less risky than Snowflake. It trades about -0.14 of its potential returns per unit of risk. Snowflake is currently generating about -0.03 per unit of risk. If you would invest  62,034  in Pentair plc on December 26, 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	Insignificant
Accuracy	98.36%
Values	Daily Returns

Pentair plc  vs.  Snowflake

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

Snowflake

Risk-Adjusted Performance

Very Weak

Over the last 90 days Snowflake has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Snowflake is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Pentair Plc and Snowflake

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

The idea behind Pentair plc and Snowflake 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.