Correlation Between PACCAR and Harley Davidson

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

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

Diversification Opportunities for PACCAR and Harley Davidson

-0.58

Correlation Coefficient

PACCAR  Harley Davidson

Excellent diversification

The 3 months correlation between PACCAR and Harley is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding PACCAR Inc and Harley Davidson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Harley Davidson 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 Harley Davidson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Harley Davidson has no effect on the direction of PACCAR i.e., PACCAR and Harley Davidson go up and down completely randomly.

Pair Corralation between PACCAR and Harley Davidson

Given the investment horizon of 90 days PACCAR Inc is expected to generate 0.91 times more return on investment than Harley Davidson. However, PACCAR Inc is 1.1 times less risky than Harley Davidson. It trades about 0.07 of its potential returns per unit of risk. Harley Davidson is currently generating about -0.17 per unit of risk. If you would invest  9,854  in PACCAR Inc on September 22, 2024 and sell it today you would earn a total of  678.00  from holding PACCAR Inc or generate 6.88% return on investment over 90 days.

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

PACCAR Inc  vs.  Harley Davidson

PACCAR Inc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PACCAR Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, PACCAR may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Harley Davidson

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Harley Davidson has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with PACCAR and Harley Davidson

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

The idea behind PACCAR Inc and Harley Davidson 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 Valuation module to check real value of public entities based on technical and fundamental data.