Correlation Between Pentair PLC and China Automotive
Can any of the company-specific risk be diversified away by investing in both Pentair PLC and China Automotive 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 China Automotive into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Pentair PLC and China Automotive Systems, you can compare the effects of market volatilities on Pentair PLC and China Automotive 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 China Automotive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pentair PLC and China Automotive.
Diversification Opportunities for Pentair PLC and China Automotive
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Pentair and China is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Pentair PLC and China Automotive Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Automotive Systems 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 China Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Automotive Systems has no effect on the direction of Pentair PLC i.e., Pentair PLC and China Automotive go up and down completely randomly.
Pair Corralation between Pentair PLC and China Automotive
Considering the 90-day investment horizon Pentair PLC is expected to generate 0.39 times more return on investment than China Automotive. However, Pentair PLC is 2.55 times less risky than China Automotive. It trades about 0.43 of its potential returns per unit of risk. China Automotive Systems is currently generating about -0.03 per unit of risk. If you would invest 9,912 in Pentair PLC on September 1, 2024 and sell it today you would earn a total of 987.00 from holding Pentair PLC or generate 9.96% 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. China Automotive Systems
Performance |
| Timeline |
| Pentair PLC |
| China Automotive Systems |
Pentair PLC and China Automotive Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Pentair PLC and China Automotive
The main advantage of trading using opposite Pentair PLC and China Automotive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pentair PLC position performs unexpectedly, China Automotive 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 China Automotive will offset losses from the drop in China Automotive's long position.| Pentair PLC vs. Illinois Tool Works | Pentair PLC vs. Parker Hannifin | Pentair PLC vs. Emerson Electric | Pentair PLC vs. Smith AO |
| China Automotive vs. Dorman Products | China Automotive vs. Monro Muffler Brake | China Automotive vs. Standard Motor Products | China Automotive vs. Stoneridge |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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