Correlation Between Safety Insurance and Pentair Plc
Can any of the company-specific risk be diversified away by investing in both Safety Insurance 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 Safety Insurance and Pentair Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Safety Insurance Group and Pentair plc, you can compare the effects of market volatilities on Safety Insurance 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 Safety Insurance with a short position of Pentair Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Safety Insurance and Pentair Plc.
Diversification Opportunities for Safety Insurance and Pentair Plc
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Safety and Pentair is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Safety Insurance Group and Pentair plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pentair plc and Safety Insurance 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 Safety Insurance Group 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 Safety Insurance i.e., Safety Insurance and Pentair Plc go up and down completely randomly.
Pair Corralation between Safety Insurance and Pentair Plc
Assuming the 90 days horizon Safety Insurance is expected to generate 2.87 times less return on investment than Pentair Plc. But when comparing it to its historical volatility, Safety Insurance Group is 1.13 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 0.12 of returns per unit of risk over similar time horizon. If you would invest 7,134 in Pentair plc on September 1, 2024 and sell it today you would earn a total of 3,181 from holding Pentair plc or generate 44.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Safety Insurance Group vs. Pentair plc
Performance |
| Timeline |
| Safety Insurance |
| Pentair plc |
Safety Insurance and Pentair Plc Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Safety Insurance and Pentair Plc
The main advantage of trading using opposite Safety Insurance and Pentair Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Safety Insurance 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.| Safety Insurance vs. The Progressive | Safety Insurance vs. Fairfax Financial Holdings | Safety Insurance vs. Insurance Australia Group |
| Pentair Plc vs. ECHO INVESTMENT ZY | Pentair Plc vs. MGIC INVESTMENT | Pentair Plc vs. New Residential Investment | Pentair Plc vs. Strategic Investments AS |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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