Correlation Between Parker Hannifin and Otis Worldwide

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

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

Diversification Opportunities for Parker Hannifin and Otis Worldwide

0.54

Correlation Coefficient

Parker Hannifin  Otis Worldwide

Very weak diversification

The 3 months correlation between Parker and Otis is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Parker Hannifin and Otis Worldwide Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Otis Worldwide Corp 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 Otis Worldwide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Otis Worldwide Corp has no effect on the direction of Parker Hannifin i.e., Parker Hannifin and Otis Worldwide go up and down completely randomly.

Pair Corralation between Parker Hannifin and Otis Worldwide

Allowing for the 90-day total investment horizon Parker Hannifin is expected to generate 1.24 times more return on investment than Otis Worldwide. However, Parker Hannifin is 1.24 times more volatile than Otis Worldwide Corp. It trades about 0.17 of its potential returns per unit of risk. Otis Worldwide Corp is currently generating about 0.11 per unit of risk. If you would invest  59,878  in Parker Hannifin on August 30, 2024 and sell it today you would earn a total of  10,110  from holding Parker Hannifin or generate 16.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Parker Hannifin  vs.  Otis Worldwide Corp

Parker Hannifin

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Parker Hannifin are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal technical indicators, Parker Hannifin demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Otis Worldwide Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Otis Worldwide Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent forward indicators, Otis Worldwide may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Parker Hannifin and Otis Worldwide

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

The idea behind Parker Hannifin and Otis Worldwide Corp 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.