Correlation Between Constellation Brands and Pentair PLC

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

By analyzing existing cross correlation between Constellation Brands Class and Pentair PLC, you can compare the effects of market volatilities on Constellation Brands and Pentair 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 Constellation Brands with a short position of Pentair PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Constellation Brands and Pentair PLC.

Diversification Opportunities for Constellation Brands and Pentair PLC

0.28

Correlation Coefficient

Constellation Brands  Pentair PLC

Modest diversification

The 3 months correlation between Constellation and Pentair is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Brands Class and Pentair PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pentair PLC and Constellation Brands 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 Constellation Brands Class are associated (or correlated) with Pentair PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pentair PLC has no effect on the direction of Constellation Brands i.e., Constellation Brands and Pentair PLC go up and down completely randomly.

Pair Corralation between Constellation Brands and Pentair PLC

Considering the 90-day investment horizon Constellation Brands Class is expected to under-perform the Pentair PLC. In addition to that, Constellation Brands is 1.57 times more volatile than Pentair PLC. It trades about -0.12 of its total potential returns per unit of risk. Pentair PLC is currently generating about 0.11 per unit of volatility. If you would invest  8,768  in Pentair PLC on October 26, 2024 and sell it today you would earn a total of  1,577  from holding Pentair PLC or generate 17.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.19%
Values	Daily Returns

Constellation Brands Class  vs.  Pentair PLC

Constellation Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Constellation Brands Class has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pentair PLC

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair PLC are ranked lower than 6 (%) 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.

Pair Trading with Constellation Brands and Pentair PLC

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

The idea behind Constellation Brands Class and Pentair PLC 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.