Correlation Between Pentair PLC and Donaldson

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

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

Diversification Opportunities for Pentair PLC and Donaldson

0.95

Correlation Coefficient

Pentair PLC  Donaldson

Almost no diversification

The 3 months correlation between Pentair and Donaldson is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Pentair PLC and Donaldson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Donaldson 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 Donaldson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Donaldson has no effect on the direction of Pentair PLC i.e., Pentair PLC and Donaldson go up and down completely randomly.

Pair Corralation between Pentair PLC and Donaldson

Considering the 90-day investment horizon Pentair PLC is expected to generate 1.1 times more return on investment than Donaldson. However, Pentair PLC is 1.1 times more volatile than Donaldson. It trades about 0.39 of its potential returns per unit of risk. Donaldson is currently generating about 0.18 per unit of risk. If you would invest  8,589  in Pentair PLC on September 4, 2024 and sell it today you would earn a total of  2,303  from holding Pentair PLC or generate 26.81% return on investment over 90 days.

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

Pentair PLC  vs.  Donaldson

Pentair PLC

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair PLC are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Pentair PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Donaldson

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Donaldson are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak fundamental indicators, Donaldson may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Pentair PLC and Donaldson

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

The idea behind Pentair PLC and Donaldson 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.