Correlation Between Pentair PLC and Empire Metals

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

By analyzing existing cross correlation between Pentair PLC and Empire Metals Limited, you can compare the effects of market volatilities on Pentair PLC and Empire Metals 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 Empire Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pentair PLC and Empire Metals.

Diversification Opportunities for Pentair PLC and Empire Metals

-0.66

Correlation Coefficient

Pentair PLC  Empire Metals

Excellent diversification

The 3 months correlation between Pentair and Empire is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Pentair PLC and Empire Metals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Empire Metals Limited 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 Empire Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Empire Metals Limited has no effect on the direction of Pentair PLC i.e., Pentair PLC and Empire Metals go up and down completely randomly.

Pair Corralation between Pentair PLC and Empire Metals

Assuming the 90 days trading horizon Pentair PLC is expected to generate 2.29 times less return on investment than Empire Metals. But when comparing it to its historical volatility, Pentair PLC is 3.3 times less risky than Empire Metals. It trades about 0.1 of its potential returns per unit of risk. Empire Metals Limited is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  195.00  in Empire Metals Limited on September 29, 2024 and sell it today you would earn a total of  465.00  from holding Empire Metals Limited or generate 238.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	94.99%
Values	Daily Returns

Pentair PLC  vs.  Empire Metals Limited

Pentair PLC

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair PLC are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Pentair PLC is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Empire Metals Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Empire Metals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Empire Metals is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Pentair PLC and Empire Metals

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

The idea behind Pentair PLC and Empire Metals Limited 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.