Correlation Between LB Foster and Pentair PLC

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

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

Diversification Opportunities for LB Foster and Pentair PLC

0.87

Correlation Coefficient

LB Foster  Pentair PLC

Very poor diversification

The 3 months correlation between FSTR and Pentair is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding LB Foster and Pentair PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pentair PLC and LB Foster 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 LB Foster 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 LB Foster i.e., LB Foster and Pentair PLC go up and down completely randomly.

Pair Corralation between LB Foster and Pentair PLC

Given the investment horizon of 90 days LB Foster is expected to generate 3.23 times less return on investment than Pentair PLC. In addition to that, LB Foster is 2.04 times more volatile than Pentair PLC. It trades about 0.02 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  8,316  in Pentair PLC on September 13, 2024 and sell it today you would earn a total of  2,513  from holding Pentair PLC or generate 30.22% return on investment over 90 days.

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

LB Foster  vs.  Pentair PLC

LB Foster

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in LB Foster are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, LB Foster reported solid returns over the last few months and may actually be approaching a breakup point.

Pentair PLC

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair PLC are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Pentair PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LB Foster and Pentair PLC

The main advantage of trading using opposite LB Foster and Pentair PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LB Foster 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 LB Foster 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 Anywhere module to track or share privately all of your investments from the convenience of any device.