Correlation Between Pentair PLC and American Environmental

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

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

Diversification Opportunities for Pentair PLC and American Environmental

0.0

Correlation Coefficient

Pentair PLC  American Environmental

Pay attention - limited upside

The 3 months correlation between Pentair and American is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Pentair PLC and American Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Environmental 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 American Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Environmental has no effect on the direction of Pentair PLC i.e., Pentair PLC and American Environmental go up and down completely randomly.

Pair Corralation between Pentair PLC and American Environmental

If you would invest  6,997  in Pentair PLC on October 8, 2024 and sell it today you would earn a total of  3,109  from holding Pentair PLC or generate 44.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Pentair PLC  vs.  American Environmental

Pentair PLC

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair PLC are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Pentair PLC is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

American Environmental

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Environmental has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, American Environmental 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 American Environmental

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

The idea behind Pentair PLC and American Environmental 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.

Check out your portfolio center.

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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.