Correlation Between WPP PLC and Pentair PLC

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

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

Diversification Opportunities for WPP PLC and Pentair PLC

0.77

Correlation Coefficient

WPP PLC  Pentair PLC

Poor diversification

The 3 months correlation between WPP and Pentair is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding WPP PLC ADR and Pentair PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pentair PLC and WPP 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 WPP PLC ADR 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 WPP PLC i.e., WPP PLC and Pentair PLC go up and down completely randomly.

Pair Corralation between WPP PLC and Pentair PLC

Considering the 90-day investment horizon WPP PLC is expected to generate 2.13 times less return on investment than Pentair PLC. But when comparing it to its historical volatility, WPP PLC ADR is 1.02 times less risky than Pentair PLC. It trades about 0.05 of its potential returns per unit of risk. Pentair PLC is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  7,188  in Pentair PLC on September 24, 2024 and sell it today you would earn a total of  3,007  from holding Pentair PLC or generate 41.83% return on investment over 90 days.

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

WPP PLC ADR  vs.  Pentair PLC

WPP PLC ADR

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in WPP PLC ADR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, WPP PLC is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail 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 current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with WPP PLC and Pentair PLC

The main advantage of trading using opposite WPP PLC and Pentair PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WPP PLC 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 WPP PLC ADR 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.