Correlation Between Pentair PLC and Cedar Realty

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

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

Diversification Opportunities for Pentair PLC and Cedar Realty

0.76

Correlation Coefficient

Pentair PLC  Cedar Realty

Poor diversification

The 3 months correlation between Pentair and Cedar is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Pentair PLC and Cedar Realty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cedar Realty Trust 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 Cedar Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cedar Realty Trust has no effect on the direction of Pentair PLC i.e., Pentair PLC and Cedar Realty go up and down completely randomly.

Pair Corralation between Pentair PLC and Cedar Realty

Considering the 90-day investment horizon Pentair PLC is expected to generate 1.03 times less return on investment than Cedar Realty. But when comparing it to its historical volatility, Pentair PLC is 3.07 times less risky than Cedar Realty. It trades about 0.32 of its potential returns per unit of risk. Cedar Realty Trust is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,399  in Cedar Realty Trust on September 13, 2024 and sell it today you would earn a total of  249.00  from holding Cedar Realty Trust or generate 17.8% return on investment over 90 days.

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

Pentair PLC  vs.  Cedar Realty Trust

Pentair PLC

Risk-Adjusted Performance

25 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair PLC are ranked lower than 25 (%) 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.

Cedar Realty Trust

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cedar Realty Trust are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat sluggish basic indicators, Cedar Realty sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pentair PLC and Cedar Realty

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

The idea behind Pentair PLC and Cedar Realty Trust 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 Global Correlations module to find global opportunities by holding instruments from different markets.