Correlation Between Pentair PLC and Datadog

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

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

Diversification Opportunities for Pentair PLC and Datadog

0.82

Correlation Coefficient

Pentair PLC  Datadog

Very poor diversification

The 3 months correlation between Pentair and Datadog is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Pentair PLC and Datadog in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Datadog 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 Datadog. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Datadog has no effect on the direction of Pentair PLC i.e., Pentair PLC and Datadog go up and down completely randomly.

Pair Corralation between Pentair PLC and Datadog

Considering the 90-day investment horizon Pentair PLC is expected to generate 1.37 times less return on investment than Datadog. But when comparing it to its historical volatility, Pentair PLC is 2.25 times less risky than Datadog. It trades about 0.38 of its potential returns per unit of risk. Datadog is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  11,148  in Datadog on August 31, 2024 and sell it today you would earn a total of  4,048  from holding Datadog or generate 36.31% return on investment over 90 days.

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

Pentair PLC  vs.  Datadog

Pentair PLC

Risk-Adjusted Performance

29 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair PLC are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Pentair PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Datadog

Risk-Adjusted Performance

18 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Datadog are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Datadog reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pentair PLC and Datadog

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

The idea behind Pentair PLC and Datadog 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.