Correlation Between Eaton PLC and Parker Hannifin

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

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

Diversification Opportunities for Eaton PLC and Parker Hannifin

0.27

Correlation Coefficient

Eaton PLC  Parker Hannifin

Modest diversification

The 3 months correlation between Eaton and Parker is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and Parker Hannifin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parker Hannifin and Eaton PLC 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 Eaton PLC 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 Eaton PLC i.e., Eaton PLC and Parker Hannifin go up and down completely randomly.

Pair Corralation between Eaton PLC and Parker Hannifin

Considering the 90-day investment horizon Eaton PLC is expected to under-perform the Parker Hannifin. In addition to that, Eaton PLC is 1.58 times more volatile than Parker Hannifin. It trades about -0.08 of its total potential returns per unit of risk. Parker Hannifin is currently generating about -0.01 per unit of volatility. If you would invest  64,229  in Parker Hannifin on December 27, 2024 and sell it today you would lose (1,634) from holding Parker Hannifin or give up 2.54% of portfolio value over 90 days.

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

Eaton PLC  vs.  Parker Hannifin

Eaton PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eaton PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Parker Hannifin

Risk-Adjusted Performance

Very Weak

Over the last 90 days Parker Hannifin has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical indicators, Parker Hannifin is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Eaton PLC and Parker Hannifin

The main advantage of trading using opposite Eaton PLC and Parker Hannifin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eaton PLC 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 Eaton PLC 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.