Correlation Between Pentair Plc and LAir Liquide

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

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

Diversification Opportunities for Pentair Plc and LAir Liquide

-0.89

Correlation Coefficient

Pentair Plc  LAir Liquide

Pay attention - limited upside

The 3 months correlation between Pentair and LAir is -0.89. Overlapping area represents the amount of risk that can be diversified away by holding Pentair plc and LAir Liquide SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LAir Liquide SA 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 LAir Liquide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LAir Liquide SA has no effect on the direction of Pentair Plc i.e., Pentair Plc and LAir Liquide go up and down completely randomly.

Pair Corralation between Pentair Plc and LAir Liquide

Assuming the 90 days horizon Pentair plc is expected to generate 1.04 times more return on investment than LAir Liquide. However, Pentair Plc is 1.04 times more volatile than LAir Liquide SA. It trades about 0.21 of its potential returns per unit of risk. LAir Liquide SA is currently generating about -0.14 per unit of risk. If you would invest  9,860  in Pentair plc on September 20, 2024 and sell it today you would earn a total of  355.00  from holding Pentair plc or generate 3.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

Pentair plc  vs.  LAir Liquide SA

Pentair plc

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair plc are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Pentair Plc reported solid returns over the last few months and may actually be approaching a breakup point.

LAir Liquide SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LAir Liquide SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, LAir Liquide is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Pentair Plc and LAir Liquide

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

The idea behind Pentair plc and LAir Liquide SA 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.