Correlation Between Pentair Plc and Kilroy Realty

Can any of the company-specific risk be diversified away by investing in both Pentair Plc and Kilroy 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 Kilroy 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 Kilroy Realty Corp, you can compare the effects of market volatilities on Pentair Plc and Kilroy 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 Kilroy Realty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pentair Plc and Kilroy Realty.

Diversification Opportunities for Pentair Plc and Kilroy Realty

0.73

Correlation Coefficient

Pentair Plc  Kilroy Realty

Poor diversification

The 3 months correlation between Pentair and Kilroy is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Pentair plc and Kilroy Realty Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kilroy Realty Corp 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 Kilroy Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kilroy Realty Corp has no effect on the direction of Pentair Plc i.e., Pentair Plc and Kilroy Realty go up and down completely randomly.

Pair Corralation between Pentair Plc and Kilroy Realty

Assuming the 90 days horizon Pentair plc is expected to generate 0.68 times more return on investment than Kilroy Realty. However, Pentair plc is 1.48 times less risky than Kilroy Realty. It trades about 0.16 of its potential returns per unit of risk. Kilroy Realty Corp is currently generating about 0.08 per unit of risk. If you would invest  8,451  in Pentair plc on September 23, 2024 and sell it today you would earn a total of  1,243  from holding Pentair plc or generate 14.71% 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.  Kilroy Realty Corp

Pentair plc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair plc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Pentair Plc reported solid returns over the last few months and may actually be approaching a breakup point.

Kilroy Realty Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kilroy Realty Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Kilroy Realty may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Pentair Plc and Kilroy Realty

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

The idea behind Pentair plc and Kilroy Realty Corp 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.