Correlation Between Pentair PLC and Park Electrochemical

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

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

Diversification Opportunities for Pentair PLC and Park Electrochemical

0.9

Correlation Coefficient

Pentair PLC  Park Electrochemical

Almost no diversification

The 3 months correlation between Pentair and Park is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Pentair PLC and Park Electrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Park Electrochemical 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 Park Electrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Park Electrochemical has no effect on the direction of Pentair PLC i.e., Pentair PLC and Park Electrochemical go up and down completely randomly.

Pair Corralation between Pentair PLC and Park Electrochemical

Considering the 90-day investment horizon Pentair PLC is expected to generate 0.7 times more return on investment than Park Electrochemical. However, Pentair PLC is 1.43 times less risky than Park Electrochemical. It trades about -0.15 of its potential returns per unit of risk. Park Electrochemical is currently generating about -0.18 per unit of risk. If you would invest  10,605  in Pentair PLC on September 22, 2024 and sell it today you would lose (410.00) from holding Pentair PLC or give up 3.87% of portfolio value over 90 days.

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

Pentair PLC  vs.  Park Electrochemical

Pentair PLC

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair PLC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, Pentair PLC may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Park Electrochemical

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Park Electrochemical are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady forward-looking signals, Park Electrochemical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Pentair PLC and Park Electrochemical

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

The idea behind Pentair PLC and Park Electrochemical 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 CEOs Directory module to screen CEOs from public companies around the world.