Correlation Between Parker Hannifin and Pentair PLC

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

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

Diversification Opportunities for Parker Hannifin and Pentair PLC

0.88

Correlation Coefficient

Parker Hannifin  Pentair PLC

Very poor diversification

The 3 months correlation between Parker and Pentair is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Parker Hannifin and Pentair PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pentair PLC 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 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 Parker Hannifin i.e., Parker Hannifin and Pentair PLC go up and down completely randomly.

Pair Corralation between Parker Hannifin and Pentair PLC

Allowing for the 90-day total investment horizon Parker Hannifin is expected to generate 1.08 times less return on investment than Pentair PLC. But when comparing it to its historical volatility, Parker Hannifin is 1.2 times less risky than Pentair PLC. It trades about 0.1 of its potential returns per unit of risk. Pentair PLC is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  7,573  in Pentair PLC on January 27, 2024 and sell it today you would earn a total of  347.00  from holding Pentair PLC or generate 4.58% return on investment over 90 days.

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

Parker Hannifin  vs.  Pentair PLC

Parker Hannifin

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Parker Hannifin are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating technical indicators, Parker Hannifin demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pentair PLC

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Pentair PLC may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Parker Hannifin and Pentair PLC

The main advantage of trading using opposite Parker Hannifin and Pentair PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Parker Hannifin 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.

The idea behind Parker Hannifin and Pentair PLC 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.