Correlation Between Preformed Line and NVent Electric

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

By analyzing existing cross correlation between Preformed Line Products and nVent Electric PLC, you can compare the effects of market volatilities on Preformed Line and NVent Electric 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 Preformed Line with a short position of NVent Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Preformed Line and NVent Electric.

Diversification Opportunities for Preformed Line and NVent Electric

0.84

Correlation Coefficient

Preformed Line  NVent Electric

Very poor diversification

The 3 months correlation between Preformed and NVent is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Preformed Line Products and nVent Electric PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on nVent Electric PLC and Preformed Line 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 Preformed Line Products are associated (or correlated) with NVent Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of nVent Electric PLC has no effect on the direction of Preformed Line i.e., Preformed Line and NVent Electric go up and down completely randomly.

Pair Corralation between Preformed Line and NVent Electric

Given the investment horizon of 90 days Preformed Line is expected to generate 1.05 times less return on investment than NVent Electric. But when comparing it to its historical volatility, Preformed Line Products is 1.11 times less risky than NVent Electric. It trades about 0.12 of its potential returns per unit of risk. nVent Electric PLC is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  6,439  in nVent Electric PLC on September 12, 2024 and sell it today you would earn a total of  1,093  from holding nVent Electric PLC or generate 16.97% return on investment over 90 days.

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

Preformed Line Products  vs.  nVent Electric PLC

Preformed Line Products

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Preformed Line Products are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Preformed Line exhibited solid returns over the last few months and may actually be approaching a breakup point.

nVent Electric PLC

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in nVent Electric PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, NVent Electric unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Preformed Line and NVent Electric

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

The idea behind Preformed Line Products and nVent Electric 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.