Correlation Between Xylem and Parker Hannifin
Can any of the company-specific risk be diversified away by investing in both Xylem 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 Xylem and Parker Hannifin into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Xylem Inc and Parker Hannifin, you can compare the effects of market volatilities on Xylem 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 Xylem with a short position of Parker Hannifin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xylem and Parker Hannifin.
Diversification Opportunities for Xylem and Parker Hannifin
-0.57 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Xylem and Parker is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Xylem Inc and Parker Hannifin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parker Hannifin and Xylem 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 Xylem Inc 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 Xylem i.e., Xylem and Parker Hannifin go up and down completely randomly.
Pair Corralation between Xylem and Parker Hannifin
Considering the 90-day investment horizon Xylem is expected to generate 2.22 times less return on investment than Parker Hannifin. But when comparing it to its historical volatility, Xylem Inc is 1.25 times less risky than Parker Hannifin. It trades about 0.08 of its potential returns per unit of risk. Parker Hannifin is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 42,188 in Parker Hannifin on August 24, 2024 and sell it today you would earn a total of 28,321 from holding Parker Hannifin or generate 67.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Xylem Inc vs. Parker Hannifin
Performance |
| Timeline |
| Xylem Inc |
| Parker Hannifin |
Xylem and Parker Hannifin Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Xylem and Parker Hannifin
The main advantage of trading using opposite Xylem and Parker Hannifin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xylem 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 Xylem Inc 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.| Parker Hannifin vs. Illinois Tool Works | Parker Hannifin vs. Pentair PLC | Parker Hannifin vs. Emerson Electric | Parker Hannifin vs. Smith AO |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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