Correlation Between Watts Water and Parker Hannifin
Can any of the company-specific risk be diversified away by investing in both Watts Water 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 Watts Water and Parker Hannifin into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Watts Water Technologies and Parker Hannifin, you can compare the effects of market volatilities on Watts Water 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 Watts Water with a short position of Parker Hannifin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Watts Water and Parker Hannifin.
Diversification Opportunities for Watts Water and Parker Hannifin
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Watts and Parker is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Watts Water Technologies and Parker Hannifin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parker Hannifin and Watts Water 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 Watts Water Technologies 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 Watts Water i.e., Watts Water and Parker Hannifin go up and down completely randomly.
Pair Corralation between Watts Water and Parker Hannifin
Considering the 90-day investment horizon Watts Water Technologies is expected to generate 0.87 times more return on investment than Parker Hannifin. However, Watts Water Technologies is 1.15 times less risky than Parker Hannifin. It trades about 0.28 of its potential returns per unit of risk. Parker Hannifin is currently generating about 0.24 per unit of risk. If you would invest 19,329 in Watts Water Technologies on September 2, 2024 and sell it today you would earn a total of 2,250 from holding Watts Water Technologies or generate 11.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Watts Water Technologies vs. Parker Hannifin
Performance |
| Timeline |
| Watts Water Technologies |
| Parker Hannifin |
Watts Water and Parker Hannifin Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Watts Water and Parker Hannifin
The main advantage of trading using opposite Watts Water and Parker Hannifin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Watts Water 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.| Watts Water vs. IDEX Corporation | Watts Water vs. Donaldson | Watts Water vs. Gorman Rupp | Watts Water vs. Enerpac Tool Group |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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