Correlation Between Pentair Plc and BP PLC

Can any of the company-specific risk be diversified away by investing in both Pentair Plc and BP 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 BP 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 BP PLC DZ1, you can compare the effects of market volatilities on Pentair Plc and BP 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 BP PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pentair Plc and BP PLC.

Diversification Opportunities for Pentair Plc and BP PLC

-0.58

Correlation Coefficient

Pentair Plc  BP PLC

Excellent diversification

The 3 months correlation between Pentair and BPE is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Pentair plc and BP PLC DZ1 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP PLC DZ1 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 BP PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BP PLC DZ1 has no effect on the direction of Pentair Plc i.e., Pentair Plc and BP PLC go up and down completely randomly.

Pair Corralation between Pentair Plc and BP PLC

Assuming the 90 days horizon Pentair plc is expected to generate 0.86 times more return on investment than BP PLC. However, Pentair plc is 1.17 times less risky than BP PLC. It trades about 0.1 of its potential returns per unit of risk. BP PLC DZ1 is currently generating about -0.04 per unit of risk. If you would invest  5,999  in Pentair plc on October 5, 2024 and sell it today you would earn a total of  3,707  from holding Pentair plc or generate 61.79% 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.  BP PLC DZ1

Pentair plc

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Pentair plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Pentair Plc may actually be approaching a critical reversion point that can send shares even higher in February 2025.

BP PLC DZ1

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BP PLC DZ1 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Pentair Plc and BP PLC

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

The idea behind Pentair plc and BP PLC DZ1 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.