Correlation Between GE Aerospace and Parker Hannifin

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

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

Diversification Opportunities for GE Aerospace and Parker Hannifin

0.87

Correlation Coefficient

GE Aerospace  Parker Hannifin

Very poor diversification

The 3 months correlation between GE Aerospace and Parker is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding GE Aerospace and Parker Hannifin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parker Hannifin and GE Aerospace 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 GE Aerospace 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 GE Aerospace i.e., GE Aerospace and Parker Hannifin go up and down completely randomly.

Pair Corralation between GE Aerospace and Parker Hannifin

Allowing for the 90-day total investment horizon GE Aerospace is expected to generate 1.03 times more return on investment than Parker Hannifin. However, GE Aerospace is 1.03 times more volatile than Parker Hannifin. It trades about 0.15 of its potential returns per unit of risk. Parker Hannifin is currently generating about 0.09 per unit of risk. If you would invest  4,848  in GE Aerospace on January 25, 2024 and sell it today you would earn a total of  11,414  from holding GE Aerospace or generate 235.44% return on investment over 90 days.

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

GE Aerospace  vs.  Parker Hannifin

GE Aerospace

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in GE Aerospace are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent technical and fundamental indicators, GE Aerospace exhibited solid returns over the last few months and may actually be approaching a breakup point.

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 weak technical indicators, Parker Hannifin demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GE Aerospace and Parker Hannifin

The main advantage of trading using opposite GE Aerospace and Parker Hannifin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GE Aerospace 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 GE Aerospace 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.