Correlation Between Pentair PLC and Luxfer Holdings

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

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

Diversification Opportunities for Pentair PLC and Luxfer Holdings

0.65

Correlation Coefficient

Pentair PLC  Luxfer Holdings

Poor diversification

The 3 months correlation between Pentair and Luxfer is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Pentair PLC and Luxfer Holdings PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Luxfer Holdings PLC 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 Luxfer Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Luxfer Holdings PLC has no effect on the direction of Pentair PLC i.e., Pentair PLC and Luxfer Holdings go up and down completely randomly.

Pair Corralation between Pentair PLC and Luxfer Holdings

Considering the 90-day investment horizon Pentair PLC is expected to under-perform the Luxfer Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Pentair PLC is 1.54 times less risky than Luxfer Holdings. The stock trades about -0.12 of its potential returns per unit of risk. The Luxfer Holdings PLC is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  1,313  in Luxfer Holdings PLC on December 29, 2024 and sell it today you would lose (131.00) from holding Luxfer Holdings PLC or give up 9.98% of portfolio value over 90 days.

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

Pentair PLC  vs.  Luxfer Holdings PLC

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.

Luxfer Holdings PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Luxfer Holdings PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unfluctuating performance, the Stock's technical and fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Pentair PLC and Luxfer Holdings

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

The idea behind Pentair PLC and Luxfer Holdings PLC 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.