Correlation Between Pentair Plc and Naturgy Energy

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Can any of the company-specific risk be diversified away by investing in both Pentair Plc and Naturgy Energy 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 Naturgy Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Pentair plc and Naturgy Energy Group, you can compare the effects of market volatilities on Pentair Plc and Naturgy Energy 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 Naturgy Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pentair Plc and Naturgy Energy.

Diversification Opportunities for Pentair Plc and Naturgy Energy

0.25
  Correlation Coefficient

Modest diversification

The 3 months correlation between Pentair and Naturgy is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Pentair plc and Naturgy Energy Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Naturgy Energy Group 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 Naturgy Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Naturgy Energy Group has no effect on the direction of Pentair Plc i.e., Pentair Plc and Naturgy Energy go up and down completely randomly.

Pair Corralation between Pentair Plc and Naturgy Energy

Assuming the 90 days horizon Pentair plc is expected to generate 1.15 times more return on investment than Naturgy Energy. However, Pentair Plc is 1.15 times more volatile than Naturgy Energy Group. It trades about 0.12 of its potential returns per unit of risk. Naturgy Energy Group is currently generating about 0.01 per unit of risk. If you would invest  4,049  in Pentair plc on September 16, 2024 and sell it today you would earn a total of  6,286  from holding Pentair plc or generate 155.25% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Pentair plc  vs.  Naturgy Energy Group

 Performance 
       Timeline  
Pentair plc 

Risk-Adjusted Performance

24 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Pentair plc are ranked lower than 24 (%) 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.
Naturgy Energy Group 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Naturgy Energy Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Naturgy Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pentair Plc and Naturgy Energy Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Pentair Plc and Naturgy Energy

The main advantage of trading using opposite Pentair Plc and Naturgy Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pentair Plc position performs unexpectedly, Naturgy Energy 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 Naturgy Energy will offset losses from the drop in Naturgy Energy's long position.
The idea behind Pentair plc and Naturgy Energy Group 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.

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