Correlation Between Pentair Plc and Auto Trader

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

By analyzing existing cross correlation between Pentair plc and Auto Trader Group, you can compare the effects of market volatilities on Pentair Plc and Auto Trader 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 Auto Trader. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pentair Plc and Auto Trader.

Diversification Opportunities for Pentair Plc and Auto Trader

0.61

Correlation Coefficient

Pentair Plc  Auto Trader

Poor diversification

The 3 months correlation between Pentair and Auto is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Pentair plc and Auto Trader Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Auto Trader Group 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 Auto Trader. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Auto Trader Group has no effect on the direction of Pentair Plc i.e., Pentair Plc and Auto Trader go up and down completely randomly.

Pair Corralation between Pentair Plc and Auto Trader

Assuming the 90 days horizon Pentair plc is expected to under-perform the Auto Trader. In addition to that, Pentair Plc is 1.23 times more volatile than Auto Trader Group. It trades about -0.21 of its total potential returns per unit of risk. Auto Trader Group is currently generating about -0.08 per unit of volatility. If you would invest  951.00  in Auto Trader Group on December 20, 2024 and sell it today you would lose (61.00) from holding Auto Trader Group or give up 6.41% of portfolio value over 90 days.

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

Pentair plc  vs.  Auto Trader Group

Pentair plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pentair plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Auto Trader Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Auto Trader Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Pentair Plc and Auto Trader

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

The idea behind Pentair plc and Auto Trader Group 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.