Correlation Between PACCAR and Quaker Chemical

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

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

Diversification Opportunities for PACCAR and Quaker Chemical

0.34

Correlation Coefficient

PACCAR  Quaker Chemical

Weak diversification

The 3 months correlation between PACCAR and Quaker is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding PACCAR Inc and Quaker Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quaker Chemical and PACCAR 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 PACCAR Inc are associated (or correlated) with Quaker Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quaker Chemical has no effect on the direction of PACCAR i.e., PACCAR and Quaker Chemical go up and down completely randomly.

Pair Corralation between PACCAR and Quaker Chemical

Assuming the 90 days horizon PACCAR Inc is expected to generate 0.83 times more return on investment than Quaker Chemical. However, PACCAR Inc is 1.21 times less risky than Quaker Chemical. It trades about 0.06 of its potential returns per unit of risk. Quaker Chemical is currently generating about -0.04 per unit of risk. If you would invest  9,582  in PACCAR Inc on September 27, 2024 and sell it today you would earn a total of  458.00  from holding PACCAR Inc or generate 4.78% return on investment over 90 days.

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

PACCAR Inc  vs.  Quaker Chemical

PACCAR Inc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PACCAR Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PACCAR reported solid returns over the last few months and may actually be approaching a breakup point.

Quaker Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Quaker Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with PACCAR and Quaker Chemical

The main advantage of trading using opposite PACCAR and Quaker Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PACCAR position performs unexpectedly, Quaker Chemical 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 Quaker Chemical will offset losses from the drop in Quaker Chemical's long position.

The idea behind PACCAR Inc and Quaker Chemical 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.