Correlation Between Parker Hannifin and Sea

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

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

Diversification Opportunities for Parker Hannifin and Sea

0.8

Correlation Coefficient

Parker Hannifin  Sea

Very poor diversification

The 3 months correlation between Parker and Sea is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Parker Hannifin and Sea in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sea 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 Sea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sea has no effect on the direction of Parker Hannifin i.e., Parker Hannifin and Sea go up and down completely randomly.

Pair Corralation between Parker Hannifin and Sea

Allowing for the 90-day total investment horizon Parker Hannifin is expected to under-perform the Sea. But the stock apears to be less risky and, when comparing its historical volatility, Parker Hannifin is 2.3 times less risky than Sea. The stock trades about -0.21 of its potential returns per unit of risk. The Sea is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  10,863  in Sea on September 18, 2024 and sell it today you would earn a total of  598.00  from holding Sea or generate 5.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.24%
Values	Daily Returns

Parker Hannifin  vs.  Sea

Parker Hannifin

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Parker Hannifin are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady technical indicators, Parker Hannifin may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sea

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sea are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Sea exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Parker Hannifin and Sea

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

The idea behind Parker Hannifin and Sea 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.