Correlation Between Donaldson and Parker Hannifin

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

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

Diversification Opportunities for Donaldson and Parker Hannifin

0.91

Correlation Coefficient

Donaldson  Parker Hannifin

Almost no diversification

The 3 months correlation between Donaldson and Parker is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Donaldson and Parker Hannifin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parker Hannifin and Donaldson 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 Donaldson 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 Donaldson i.e., Donaldson and Parker Hannifin go up and down completely randomly.

Pair Corralation between Donaldson and Parker Hannifin

Considering the 90-day investment horizon Donaldson is expected to generate 2.4 times less return on investment than Parker Hannifin. But when comparing it to its historical volatility, Donaldson is 1.63 times less risky than Parker Hannifin. It trades about 0.11 of its potential returns per unit of risk. Parker Hannifin is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  59,878  in Parker Hannifin on August 30, 2024 and sell it today you would earn a total of  10,110  from holding Parker Hannifin or generate 16.88% return on investment over 90 days.

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

Donaldson  vs.  Parker Hannifin

Donaldson

Risk-Adjusted Performance

8 of 100

OK

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

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

Pair Trading with Donaldson and Parker Hannifin

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

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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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.