Correlation Between Pentair PLC and China Automotive

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

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

Diversification Opportunities for Pentair PLC and China Automotive

-0.71

Correlation Coefficient

Pentair PLC  China Automotive

Pay attention - limited upside

The 3 months correlation between Pentair and China is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Pentair PLC and China Automotive Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Automotive Systems 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 China Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Automotive Systems has no effect on the direction of Pentair PLC i.e., Pentair PLC and China Automotive go up and down completely randomly.

Pair Corralation between Pentair PLC and China Automotive

Considering the 90-day investment horizon Pentair PLC is expected to under-perform the China Automotive. But the stock apears to be less risky and, when comparing its historical volatility, Pentair PLC is 1.81 times less risky than China Automotive. The stock trades about -0.15 of its potential returns per unit of risk. The China Automotive Systems is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  409.00  in China Automotive Systems on December 28, 2024 and sell it today you would earn a total of  69.00  from holding China Automotive Systems or generate 16.87% return on investment over 90 days.

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

Pentair PLC  vs.  China Automotive Systems

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 abnormal performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

China Automotive Systems

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Automotive Systems are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, China Automotive unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pentair PLC and China Automotive

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

The idea behind Pentair PLC and China Automotive Systems 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.