Correlation Between Pentair PLC and Community

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

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

Diversification Opportunities for Pentair PLC and Community

-0.36

Correlation Coefficient

Pentair PLC  Community

Very good diversification

The 3 months correlation between Pentair and Community is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Pentair PLC and Community Health Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Community Health Systems 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 Community. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Community Health Systems has no effect on the direction of Pentair PLC i.e., Pentair PLC and Community go up and down completely randomly.

Pair Corralation between Pentair PLC and Community

Considering the 90-day investment horizon Pentair PLC is expected to generate 0.3 times more return on investment than Community. However, Pentair PLC is 3.35 times less risky than Community. It trades about 0.41 of its potential returns per unit of risk. Community Health Systems is currently generating about -0.16 per unit of risk. If you would invest  8,496  in Pentair PLC on September 5, 2024 and sell it today you would earn a total of  2,387  from holding Pentair PLC or generate 28.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	73.02%
Values	Daily Returns

Pentair PLC  vs.  Community Health Systems

Pentair PLC

Risk-Adjusted Performance

32 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair PLC are ranked lower than 32 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Pentair PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Community Health Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Community Health Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for Community Health Systems investors.

Pair Trading with Pentair PLC and Community

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

The idea behind Pentair PLC and Community Health Systems 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.