Correlation Between Parker Hannifin and Eaton PLC

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

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

Diversification Opportunities for Parker Hannifin and Eaton PLC

0.28

Correlation Coefficient

Parker Hannifin  Eaton PLC

Modest diversification

The 3 months correlation between Parker and Eaton is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Parker Hannifin and Eaton PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eaton PLC 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 Eaton PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eaton PLC has no effect on the direction of Parker Hannifin i.e., Parker Hannifin and Eaton PLC go up and down completely randomly.

Pair Corralation between Parker Hannifin and Eaton PLC

Allowing for the 90-day total investment horizon Parker Hannifin is expected to generate 0.62 times more return on investment than Eaton PLC. However, Parker Hannifin is 1.61 times less risky than Eaton PLC. It trades about -0.02 of its potential returns per unit of risk. Eaton PLC is currently generating about -0.06 per unit of risk. If you would invest  64,413  in Parker Hannifin on December 22, 2024 and sell it today you would lose (2,203) from holding Parker Hannifin or give up 3.42% of portfolio value over 90 days.

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

Parker Hannifin  vs.  Eaton PLC

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.

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 latest abnormal performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Parker Hannifin and Eaton PLC

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

The idea behind Parker Hannifin and Eaton PLC 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.