Correlation Between Parker Hannifin and Xylem

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

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

Diversification Opportunities for Parker Hannifin and Xylem

-0.59

Correlation Coefficient

Parker Hannifin  Xylem

Excellent diversification

The 3 months correlation between Parker and Xylem is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Parker Hannifin and Xylem Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xylem Inc 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 Xylem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xylem Inc has no effect on the direction of Parker Hannifin i.e., Parker Hannifin and Xylem go up and down completely randomly.

Pair Corralation between Parker Hannifin and Xylem

Allowing for the 90-day total investment horizon Parker Hannifin is expected to generate 1.05 times more return on investment than Xylem. However, Parker Hannifin is 1.05 times more volatile than Xylem Inc. It trades about 0.06 of its potential returns per unit of risk. Xylem Inc is currently generating about -0.14 per unit of risk. If you would invest  61,726  in Parker Hannifin on September 21, 2024 and sell it today you would earn a total of  2,994  from holding Parker Hannifin or generate 4.85% return on investment over 90 days.

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

Parker Hannifin  vs.  Xylem Inc

Parker Hannifin

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Parker Hannifin are ranked lower than 4 (%) 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.

Xylem Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xylem Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Parker Hannifin and Xylem

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

The idea behind Parker Hannifin and Xylem Inc 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.