Correlation Between Pentair PLC and NET Power

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

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

Diversification Opportunities for Pentair PLC and NET Power

0.8

Correlation Coefficient

Pentair PLC  NET Power

Very poor diversification

The 3 months correlation between Pentair and NET is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Pentair PLC and NET Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NET Power 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 NET Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NET Power has no effect on the direction of Pentair PLC i.e., Pentair PLC and NET Power go up and down completely randomly.

Pair Corralation between Pentair PLC and NET Power

Considering the 90-day investment horizon Pentair PLC is expected to generate 0.41 times more return on investment than NET Power. However, Pentair PLC is 2.45 times less risky than NET Power. It trades about 0.08 of its potential returns per unit of risk. NET Power is currently generating about 0.02 per unit of risk. If you would invest  8,220  in Pentair PLC on October 9, 2024 and sell it today you would earn a total of  1,732  from holding Pentair PLC or generate 21.07% 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.  NET Power

Pentair PLC

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair PLC are ranked lower than 3 (%) 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.

NET Power

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NET Power are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, NET Power reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pentair PLC and NET Power

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

The idea behind Pentair PLC and NET Power 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.