Correlation Between Sanyo Chemical and Pentair Plc

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

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

Diversification Opportunities for Sanyo Chemical and Pentair Plc

-0.63

Correlation Coefficient

Sanyo Chemical  Pentair Plc

Excellent diversification

The 3 months correlation between Sanyo and Pentair is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Sanyo Chemical Industries and Pentair plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pentair plc and Sanyo Chemical 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 Sanyo Chemical Industries 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 Sanyo Chemical i.e., Sanyo Chemical and Pentair Plc go up and down completely randomly.

Pair Corralation between Sanyo Chemical and Pentair Plc

Assuming the 90 days horizon Sanyo Chemical Industries is expected to under-perform the Pentair Plc. But the stock apears to be less risky and, when comparing its historical volatility, Sanyo Chemical Industries is 1.25 times less risky than Pentair Plc. The stock trades about -0.02 of its potential returns per unit of risk. The Pentair plc is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  6,204  in Pentair plc on September 4, 2024 and sell it today you would earn a total of  4,141  from holding Pentair plc or generate 66.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.6%
Values	Daily Returns

Sanyo Chemical Industries  vs.  Pentair plc

Sanyo Chemical Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sanyo Chemical Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Sanyo Chemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pentair plc

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair plc are ranked lower than 30 (%) 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.

Pair Trading with Sanyo Chemical and Pentair Plc

The main advantage of trading using opposite Sanyo Chemical and Pentair Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sanyo Chemical 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 Sanyo Chemical Industries 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.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.