Correlation Between Graco and Pentair PLC
Can any of the company-specific risk be diversified away by investing in both Graco 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 Graco and Pentair PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Graco Inc and Pentair PLC, you can compare the effects of market volatilities on Graco 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 Graco with a short position of Pentair PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Graco and Pentair PLC.
Diversification Opportunities for Graco and Pentair PLC
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Graco and Pentair is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Graco Inc and Pentair PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pentair PLC and Graco 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 Graco Inc 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 Graco i.e., Graco and Pentair PLC go up and down completely randomly.
Pair Corralation between Graco and Pentair PLC
Considering the 90-day investment horizon Graco is expected to generate 2.53 times less return on investment than Pentair PLC. But when comparing it to its historical volatility, Graco Inc is 1.17 times less risky than Pentair PLC. It trades about 0.05 of its potential returns per unit of risk. Pentair PLC is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 4,958 in Pentair PLC on October 20, 2024 and sell it today you would earn a total of 5,344 from holding Pentair PLC or generate 107.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Graco Inc vs. Pentair PLC
Performance |
| Timeline |
| Graco Inc |
| Pentair PLC |
Graco and Pentair PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Graco and Pentair PLC
The main advantage of trading using opposite Graco and Pentair PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Graco 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 Graco Inc 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.| Pentair PLC vs. Illinois Tool Works | Pentair PLC vs. Parker Hannifin | Pentair PLC vs. Emerson Electric | Pentair PLC vs. Smith AO |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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