Correlation Between Parker Hannifin and Donaldson

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

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

Diversification Opportunities for Parker Hannifin and Donaldson

0.86

Correlation Coefficient

Parker Hannifin  Donaldson

Very poor diversification

The 3 months correlation between Parker and Donaldson is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Parker Hannifin and Donaldson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Donaldson 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 Donaldson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Donaldson has no effect on the direction of Parker Hannifin i.e., Parker Hannifin and Donaldson go up and down completely randomly.

Pair Corralation between Parker Hannifin and Donaldson

Allowing for the 90-day total investment horizon Parker Hannifin is expected to under-perform the Donaldson. In addition to that, Parker Hannifin is 1.6 times more volatile than Donaldson. It trades about -0.15 of its total potential returns per unit of risk. Donaldson is currently generating about -0.03 per unit of volatility. If you would invest  7,413  in Donaldson on February 4, 2024 and sell it today you would lose (31.00) from holding Donaldson or give up 0.42% of portfolio value over 90 days.

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

Parker Hannifin  vs.  Donaldson

Parker Hannifin

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Parker Hannifin are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical indicators, Parker Hannifin is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Donaldson

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Donaldson are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady fundamental indicators, Donaldson may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Parker Hannifin and Donaldson

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

The idea behind Parker Hannifin and Donaldson 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.