Correlation Between Pentair PLC and WPP PLC

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

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

Diversification Opportunities for Pentair PLC and WPP PLC

0.77

Correlation Coefficient

Pentair PLC  WPP PLC

Poor diversification

The 3 months correlation between Pentair and WPP is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Pentair PLC and WPP PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WPP PLC ADR 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 WPP PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WPP PLC ADR has no effect on the direction of Pentair PLC i.e., Pentair PLC and WPP PLC go up and down completely randomly.

Pair Corralation between Pentair PLC and WPP PLC

Considering the 90-day investment horizon Pentair PLC is expected to generate 1.03 times more return on investment than WPP PLC. However, Pentair PLC is 1.03 times more volatile than WPP PLC ADR. It trades about 0.13 of its potential returns per unit of risk. WPP PLC ADR is currently generating about 0.07 per unit of risk. If you would invest  5,804  in Pentair PLC on September 24, 2024 and sell it today you would earn a total of  4,391  from holding Pentair PLC or generate 75.65% return on investment over 90 days.

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

Pentair PLC  vs.  WPP PLC ADR

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 current stock price agitation, may contribute to short-term losses for the retail investors.

WPP PLC ADR

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in WPP PLC ADR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, WPP PLC is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Pentair PLC and WPP PLC

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

The idea behind Pentair PLC and WPP PLC ADR 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.