Correlation Between Pentair PLC and Parker Hannifin
Can any of the company-specific risk be diversified away by investing in both Pentair PLC and Parker Hannifin 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 Parker Hannifin into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Pentair PLC and Parker Hannifin, you can compare the effects of market volatilities on Pentair PLC and Parker Hannifin 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 Parker Hannifin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pentair PLC and Parker Hannifin.
Diversification Opportunities for Pentair PLC and Parker Hannifin
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Pentair and Parker is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Pentair PLC and Parker Hannifin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parker Hannifin 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 Parker Hannifin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Parker Hannifin has no effect on the direction of Pentair PLC i.e., Pentair PLC and Parker Hannifin go up and down completely randomly.
Pair Corralation between Pentair PLC and Parker Hannifin
Considering the 90-day investment horizon Pentair PLC is expected to under-perform the Parker Hannifin. But the stock apears to be less risky and, when comparing its historical volatility, Pentair PLC is 1.24 times less risky than Parker Hannifin. The stock trades about -0.33 of its potential returns per unit of risk. The Parker Hannifin is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest 55,101 in Parker Hannifin on February 1, 2024 and sell it today you would lose (610.00) from holding Parker Hannifin or give up 1.11% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Pentair PLC vs. Parker Hannifin
Performance |
| Timeline |
| Pentair PLC |
| Parker Hannifin |
Pentair PLC and Parker Hannifin Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Pentair PLC and Parker Hannifin
The main advantage of trading using opposite Pentair PLC and Parker Hannifin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pentair PLC position performs unexpectedly, Parker Hannifin 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 Parker Hannifin will offset losses from the drop in Parker Hannifin's long position.The idea behind Pentair PLC and Parker Hannifin 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.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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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