Correlation Between Parker Hannifin and Compass Diversified

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

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

Diversification Opportunities for Parker Hannifin and Compass Diversified

0.56

Correlation Coefficient

Parker Hannifin  Compass Diversified

Very weak diversification

The 3 months correlation between Parker and Compass is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Parker Hannifin and Compass Diversified in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Diversified 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 Compass Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compass Diversified has no effect on the direction of Parker Hannifin i.e., Parker Hannifin and Compass Diversified go up and down completely randomly.

Pair Corralation between Parker Hannifin and Compass Diversified

Allowing for the 90-day total investment horizon Parker Hannifin is expected to under-perform the Compass Diversified. In addition to that, Parker Hannifin is 3.12 times more volatile than Compass Diversified. It trades about -0.04 of its total potential returns per unit of risk. Compass Diversified is currently generating about -0.07 per unit of volatility. If you would invest  2,331  in Compass Diversified on December 30, 2024 and sell it today you would lose (65.00) from holding Compass Diversified or give up 2.79% of portfolio value over 90 days.

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

Parker Hannifin  vs.  Compass Diversified

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.

Compass Diversified

Risk-Adjusted Performance

Very Weak

Over the last 90 days Compass Diversified has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Compass Diversified is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Parker Hannifin and Compass Diversified

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

The idea behind Parker Hannifin and Compass Diversified 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.