Correlation Between Pentair Plc and Procter Gamble

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

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

Diversification Opportunities for Pentair Plc and Procter Gamble

0.58

Correlation Coefficient

Pentair Plc  Procter Gamble

Very weak diversification

The 3 months correlation between Pentair and Procter is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Pentair plc and The Procter Gamble in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Procter Gamble 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 Procter Gamble. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Procter Gamble has no effect on the direction of Pentair Plc i.e., Pentair Plc and Procter Gamble go up and down completely randomly.

Pair Corralation between Pentair Plc and Procter Gamble

Assuming the 90 days horizon Pentair plc is expected to generate 1.3 times more return on investment than Procter Gamble. However, Pentair Plc is 1.3 times more volatile than The Procter Gamble. It trades about 0.32 of its potential returns per unit of risk. The Procter Gamble is currently generating about 0.13 per unit of risk. If you would invest  7,980  in Pentair plc on September 3, 2024 and sell it today you would earn a total of  2,335  from holding Pentair plc or generate 29.26% return on investment over 90 days.

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

Pentair plc  vs.  The Procter Gamble

Pentair plc

Risk-Adjusted Performance

25 of 100

Solid

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. Despite nearly fragile basic indicators, Pentair Plc reported solid returns over the last few months and may actually be approaching a breakup point.

Procter Gamble

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Procter Gamble are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Procter Gamble may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Pentair Plc and Procter Gamble

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

The idea behind Pentair plc and The Procter Gamble 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.