Correlation Between WILLIS LEASE and Pentair Plc

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

By analyzing existing cross correlation between WILLIS LEASE FIN and Pentair plc, you can compare the effects of market volatilities on WILLIS LEASE and Pentair Plc 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 WILLIS LEASE with a short position of Pentair Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of WILLIS LEASE and Pentair Plc.

Diversification Opportunities for WILLIS LEASE and Pentair Plc

0.87

Correlation Coefficient

WILLIS LEASE  Pentair Plc

Very poor diversification

The 3 months correlation between WILLIS and Pentair is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding WILLIS LEASE FIN and Pentair plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pentair plc and WILLIS LEASE 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 WILLIS LEASE FIN are associated (or correlated) with Pentair Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pentair plc has no effect on the direction of WILLIS LEASE i.e., WILLIS LEASE and Pentair Plc go up and down completely randomly.

Pair Corralation between WILLIS LEASE and Pentair Plc

Assuming the 90 days horizon WILLIS LEASE FIN is expected to generate 3.47 times more return on investment than Pentair Plc. However, WILLIS LEASE is 3.47 times more volatile than Pentair plc. It trades about 0.17 of its potential returns per unit of risk. Pentair plc is currently generating about 0.14 per unit of risk. If you would invest  12,385  in WILLIS LEASE FIN on September 27, 2024 and sell it today you would earn a total of  6,915  from holding WILLIS LEASE FIN or generate 55.83% return on investment over 90 days.

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

WILLIS LEASE FIN  vs.  Pentair plc

WILLIS LEASE FIN

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WILLIS LEASE FIN are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, WILLIS LEASE reported solid returns over the last few months and may actually be approaching a breakup point.

Pentair plc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair plc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Pentair Plc may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with WILLIS LEASE and Pentair Plc

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

The idea behind WILLIS LEASE FIN and Pentair plc 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 Global Correlations module to find global opportunities by holding instruments from different markets.