Correlation Between Smith AO and Pentair PLC
Can any of the company-specific risk be diversified away by investing in both Smith AO 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 Smith AO and Pentair PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Smith AO and Pentair PLC, you can compare the effects of market volatilities on Smith AO 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 Smith AO with a short position of Pentair PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smith AO and Pentair PLC.
Diversification Opportunities for Smith AO and Pentair PLC
-0.44 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Smith and Pentair is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Smith AO and Pentair PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pentair PLC and Smith AO 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 Smith AO 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 Smith AO i.e., Smith AO and Pentair PLC go up and down completely randomly.
Pair Corralation between Smith AO and Pentair PLC
Considering the 90-day investment horizon Smith AO is expected to under-perform the Pentair PLC. But the stock apears to be less risky and, when comparing its historical volatility, Smith AO is 1.05 times less risky than Pentair PLC. The stock trades about -0.03 of its potential returns per unit of risk. The Pentair PLC is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 7,716 in Pentair PLC on August 27, 2024 and sell it today you would earn a total of 2,977 from holding Pentair PLC or generate 38.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Smith AO vs. Pentair PLC
Performance |
| Timeline |
| Smith AO |
| Pentair PLC |
Smith AO and Pentair PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Smith AO and Pentair PLC
The main advantage of trading using opposite Smith AO and Pentair PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smith AO 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.| Smith AO vs. Dover | Smith AO vs. Illinois Tool Works | Smith AO vs. Xylem Inc | Smith AO vs. Franklin Electric Co |
| Pentair PLC vs. Aquagold International | Pentair PLC vs. Morningstar Unconstrained Allocation | Pentair PLC vs. High Yield Municipal Fund | Pentair PLC vs. Thrivent High Yield |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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