Correlation Between Pentair PLC and Smith AO

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

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

Diversification Opportunities for Pentair PLC and Smith AO

0.47

Correlation Coefficient

Pentair PLC  Smith AO

Very weak diversification

The 3 months correlation between Pentair and Smith is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Pentair PLC and Smith AO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith AO 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 Smith AO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smith AO has no effect on the direction of Pentair PLC i.e., Pentair PLC and Smith AO go up and down completely randomly.

Pair Corralation between Pentair PLC and Smith AO

Considering the 90-day investment horizon Pentair PLC is expected to under-perform the Smith AO. In addition to that, Pentair PLC is 1.06 times more volatile than Smith AO. It trades about -0.12 of its total potential returns per unit of risk. Smith AO is currently generating about -0.02 per unit of volatility. If you would invest  6,768  in Smith AO on December 28, 2024 and sell it today you would lose (170.00) from holding Smith AO or give up 2.51% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

Pentair PLC  vs.  Smith AO

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. Even with latest abnormal performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Smith AO

Risk-Adjusted Performance

Very Weak

Over the last 90 days Smith AO has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Smith AO is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Pentair PLC and Smith AO

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

The idea behind Pentair PLC and Smith AO 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.