Correlation Between Pentair PLC and CF Industries

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

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

Diversification Opportunities for Pentair PLC and CF Industries

0.57

Correlation Coefficient

Pentair PLC  CF Industries

Very weak diversification

The 3 months correlation between Pentair and CF Industries is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Pentair PLC and CF Industries Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CF Industries Holdings 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 CF Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CF Industries Holdings has no effect on the direction of Pentair PLC i.e., Pentair PLC and CF Industries go up and down completely randomly.

Pair Corralation between Pentair PLC and CF Industries

Considering the 90-day investment horizon Pentair PLC is expected to generate 0.7 times more return on investment than CF Industries. However, Pentair PLC is 1.43 times less risky than CF Industries. It trades about -0.15 of its potential returns per unit of risk. CF Industries Holdings is currently generating about -0.17 per unit of risk. If you would invest  10,605  in Pentair PLC on September 22, 2024 and sell it today you would lose (410.00) from holding Pentair PLC or give up 3.87% of portfolio value over 90 days.

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

Pentair PLC  vs.  CF Industries Holdings

Pentair PLC

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair PLC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, Pentair PLC may actually be approaching a critical reversion point that can send shares even higher in January 2025.

CF Industries Holdings

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, CF Industries is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Pentair PLC and CF Industries

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

The idea behind Pentair PLC and CF Industries Holdings 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.