Correlation Between Pentair PLC and Prudential Plc

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

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

Diversification Opportunities for Pentair PLC and Prudential Plc

-0.46

Correlation Coefficient

Pentair PLC  Prudential Plc

Very good diversification

The 3 months correlation between Pentair and Prudential is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Pentair PLC and Prudential plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential plc 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 Prudential Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential plc has no effect on the direction of Pentair PLC i.e., Pentair PLC and Prudential Plc go up and down completely randomly.

Pair Corralation between Pentair PLC and Prudential Plc

Assuming the 90 days trading horizon Pentair PLC is expected to under-perform the Prudential Plc. But the stock apears to be less risky and, when comparing its historical volatility, Pentair PLC is 1.2 times less risky than Prudential Plc. The stock trades about -0.2 of its potential returns per unit of risk. The Prudential plc is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  63,540  in Prudential plc on September 22, 2024 and sell it today you would lose (700.00) from holding Prudential plc or give up 1.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Pentair PLC  vs.  Prudential plc

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. In spite of comparatively stable basic indicators, Pentair PLC is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Prudential plc

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Pentair PLC and Prudential Plc

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

The idea behind Pentair PLC and Prudential 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.