Correlation Between Pentair PLC and NYSE Declining

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

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

Diversification Opportunities for Pentair PLC and NYSE Declining

0.13

Correlation Coefficient

Pentair PLC  NYSE Declining

Average diversification

The 3 months correlation between Pentair and NYSE is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Pentair PLC and NYSE Declining Volume in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NYSE Declining Volume 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 NYSE Declining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NYSE Declining Volume has no effect on the direction of Pentair PLC i.e., Pentair PLC and NYSE Declining go up and down completely randomly.

Pair Corralation between Pentair PLC and NYSE Declining

Considering the 90-day investment horizon Pentair PLC is expected to generate 119.98 times less return on investment than NYSE Declining. But when comparing it to its historical volatility, Pentair PLC is 53.8 times less risky than NYSE Declining. It trades about 0.1 of its potential returns per unit of risk. NYSE Declining Volume is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  102,223  in NYSE Declining Volume on September 22, 2024 and sell it today you would lose (7,735) from holding NYSE Declining Volume or give up 7.57% of portfolio value over 90 days.

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

Pentair PLC  vs.  NYSE Declining Volume

Pair Trading with Pentair PLC and NYSE Declining

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

The idea behind Pentair PLC and NYSE Declining Volume 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.