Correlation Between Pentair PLC and Laser Photonics

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

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

Diversification Opportunities for Pentair PLC and Laser Photonics

-0.16

Correlation Coefficient

Pentair PLC  Laser Photonics

Good diversification

The 3 months correlation between Pentair and Laser is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Pentair PLC and Laser Photonics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Laser Photonics 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 Laser Photonics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Laser Photonics has no effect on the direction of Pentair PLC i.e., Pentair PLC and Laser Photonics go up and down completely randomly.

Pair Corralation between Pentair PLC and Laser Photonics

Considering the 90-day investment horizon Pentair PLC is expected to generate 1.94 times less return on investment than Laser Photonics. But when comparing it to its historical volatility, Pentair PLC is 5.12 times less risky than Laser Photonics. It trades about 0.4 of its potential returns per unit of risk. Laser Photonics is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  476.00  in Laser Photonics on September 5, 2024 and sell it today you would earn a total of  74.00  from holding Laser Photonics or generate 15.55% return on investment over 90 days.

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

Pentair PLC  vs.  Laser Photonics

Pentair PLC

Risk-Adjusted Performance

32 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair PLC are ranked lower than 32 (%) 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.

Laser Photonics

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Laser Photonics are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Laser Photonics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pentair PLC and Laser Photonics

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

The idea behind Pentair PLC and Laser Photonics 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.