Correlation Between Pentair Plc and MGP Ingredients

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

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

Diversification Opportunities for Pentair Plc and MGP Ingredients

0.44

Correlation Coefficient

Pentair Plc  MGP Ingredients

Very weak diversification

The 3 months correlation between Pentair and MGP is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Pentair plc and MGP Ingredients in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MGP Ingredients 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 MGP Ingredients. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MGP Ingredients has no effect on the direction of Pentair Plc i.e., Pentair Plc and MGP Ingredients go up and down completely randomly.

Pair Corralation between Pentair Plc and MGP Ingredients

Assuming the 90 days horizon Pentair plc is expected to generate 0.49 times more return on investment than MGP Ingredients. However, Pentair plc is 2.03 times less risky than MGP Ingredients. It trades about -0.21 of its potential returns per unit of risk. MGP Ingredients is currently generating about -0.17 per unit of risk. If you would invest  9,670  in Pentair plc on December 20, 2024 and sell it today you would lose (1,738) from holding Pentair plc or give up 17.97% of portfolio value over 90 days.

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

Pentair plc  vs.  MGP Ingredients

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.

MGP Ingredients

Risk-Adjusted Performance

Very Weak

Over the last 90 days MGP Ingredients has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady 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.

Pair Trading with Pentair Plc and MGP Ingredients

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

The idea behind Pentair plc and MGP Ingredients 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.