Correlation Between Parker Hannifin and United Rentals

Can any of the company-specific risk be diversified away by investing in both Parker Hannifin and United Rentals 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 Parker Hannifin and United Rentals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Parker Hannifin and United Rentals, you can compare the effects of market volatilities on Parker Hannifin and United Rentals 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 Parker Hannifin with a short position of United Rentals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Parker Hannifin and United Rentals.

Diversification Opportunities for Parker Hannifin and United Rentals

0.91

Correlation Coefficient

Parker Hannifin  United Rentals

Almost no diversification

The 3 months correlation between Parker and United is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Parker Hannifin and United Rentals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Rentals and Parker Hannifin 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 Parker Hannifin are associated (or correlated) with United Rentals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Rentals has no effect on the direction of Parker Hannifin i.e., Parker Hannifin and United Rentals go up and down completely randomly.

Pair Corralation between Parker Hannifin and United Rentals

Allowing for the 90-day total investment horizon Parker Hannifin is expected to generate 0.59 times more return on investment than United Rentals. However, Parker Hannifin is 1.7 times less risky than United Rentals. It trades about 0.11 of its potential returns per unit of risk. United Rentals is currently generating about -0.01 per unit of risk. If you would invest  51,953  in Parker Hannifin on January 18, 2024 and sell it today you would earn a total of  2,104  from holding Parker Hannifin or generate 4.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Parker Hannifin  vs.  United Rentals

Parker Hannifin

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Parker Hannifin are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal technical indicators, Parker Hannifin demonstrated solid returns over the last few months and may actually be approaching a breakup point.

United Rentals

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in United Rentals are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, United Rentals demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Parker Hannifin and United Rentals

The main advantage of trading using opposite Parker Hannifin and United Rentals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Parker Hannifin position performs unexpectedly, United Rentals 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 United Rentals will offset losses from the drop in United Rentals' long position.

The idea behind Parker Hannifin and United Rentals 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.