Correlation Between Parker Hannifin and International Paper

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

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

Diversification Opportunities for Parker Hannifin and International Paper

0.53

Correlation Coefficient

Parker Hannifin  International Paper

Very weak diversification

The 3 months correlation between Parker and International is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Parker Hannifin and International Paper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Paper 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 International Paper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Paper has no effect on the direction of Parker Hannifin i.e., Parker Hannifin and International Paper go up and down completely randomly.

Pair Corralation between Parker Hannifin and International Paper

If you would invest  7,600  in International Paper on September 28, 2024 and sell it today you would earn a total of  0.00  from holding International Paper or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	5.0%
Values	Daily Returns

Parker Hannifin  vs.  International Paper

Parker Hannifin

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Parker Hannifin are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

International Paper

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days International Paper has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, International Paper is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Parker Hannifin and International Paper

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

The idea behind Parker Hannifin and International Paper 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.