Correlation Between Pentair PLC and Xylem

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

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

Diversification Opportunities for Pentair PLC and Xylem

-0.53

Correlation Coefficient

Pentair PLC  Xylem

Excellent diversification

The 3 months correlation between Pentair and Xylem is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Pentair PLC and Xylem Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xylem Inc 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 Xylem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xylem Inc has no effect on the direction of Pentair PLC i.e., Pentair PLC and Xylem go up and down completely randomly.

Pair Corralation between Pentair PLC and Xylem

Considering the 90-day investment horizon Pentair PLC is expected to generate 1.2 times more return on investment than Xylem. However, Pentair PLC is 1.2 times more volatile than Xylem Inc. It trades about 0.1 of its potential returns per unit of risk. Xylem Inc is currently generating about 0.02 per unit of risk. If you would invest  4,623  in Pentair PLC on September 30, 2024 and sell it today you would earn a total of  5,491  from holding Pentair PLC or generate 118.78% return on investment over 90 days.

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

Pentair PLC  vs.  Xylem Inc

Pentair PLC

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair PLC are ranked lower than 4 (%) 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.

Xylem Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xylem Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Pentair PLC and Xylem

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

The idea behind Pentair PLC and Xylem Inc 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.