Correlation Between Pentair PLC and Thermon Group

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

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

Diversification Opportunities for Pentair PLC and Thermon Group

0.72

Correlation Coefficient

Pentair PLC  Thermon Group

Poor diversification

The 3 months correlation between Pentair and Thermon is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Pentair PLC and Thermon Group Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thermon Group Holdings 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 Thermon Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thermon Group Holdings has no effect on the direction of Pentair PLC i.e., Pentair PLC and Thermon Group go up and down completely randomly.

Pair Corralation between Pentair PLC and Thermon Group

Considering the 90-day investment horizon Pentair PLC is expected to generate 0.54 times more return on investment than Thermon Group. However, Pentair PLC is 1.85 times less risky than Thermon Group. It trades about 0.09 of its potential returns per unit of risk. Thermon Group Holdings is currently generating about -0.01 per unit of risk. If you would invest  9,640  in Pentair PLC on September 24, 2024 and sell it today you would earn a total of  555.00  from holding Pentair PLC or generate 5.76% 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.  Thermon Group Holdings

Pentair PLC

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair PLC are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Pentair PLC is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Thermon Group Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Thermon Group Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical indicators, Thermon Group is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Pentair PLC and Thermon Group

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

The idea behind Pentair PLC and Thermon Group Holdings 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.