Correlation Between Parker Hannifin and ABB

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

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

Diversification Opportunities for Parker Hannifin and ABB

0.63

Correlation Coefficient

Parker Hannifin  ABB

Poor diversification

The 3 months correlation between Parker and ABB is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Parker Hannifin and ABB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB and Parker Hannifin 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 Parker Hannifin are associated (or correlated) with ABB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABB has no effect on the direction of Parker Hannifin i.e., Parker Hannifin and ABB go up and down completely randomly.

Pair Corralation between Parker Hannifin and ABB

Assuming the 90 days horizon Parker Hannifin is expected to generate 1.01 times more return on investment than ABB. However, Parker Hannifin is 1.01 times more volatile than ABB. It trades about -0.02 of its potential returns per unit of risk. ABB is currently generating about -0.02 per unit of risk. If you would invest  61,659  in Parker Hannifin on December 28, 2024 and sell it today you would lose (2,019) from holding Parker Hannifin or give up 3.27% of portfolio value over 90 days.

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

Parker Hannifin  vs.  ABB

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 nearly stable basic indicators, Parker Hannifin is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

ABB

Risk-Adjusted Performance

Very Weak

Over the last 90 days ABB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking indicators, ABB is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Parker Hannifin and ABB

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

The idea behind Parker Hannifin and ABB 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.