Correlation Between Parsons Corp and Electronic Control

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

By analyzing existing cross correlation between Parsons Corp and Electronic Control Security, you can compare the effects of market volatilities on Parsons Corp and Electronic Control 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 Parsons Corp with a short position of Electronic Control. Check out your portfolio center. Please also check ongoing floating volatility patterns of Parsons Corp and Electronic Control.

Diversification Opportunities for Parsons Corp and Electronic Control

0.21

Correlation Coefficient

Parsons Corp  Electronic Control

Modest diversification

The 3 months correlation between Parsons and Electronic is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Parsons Corp and Electronic Control Security in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronic Control and Parsons Corp 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 Parsons Corp are associated (or correlated) with Electronic Control. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electronic Control has no effect on the direction of Parsons Corp i.e., Parsons Corp and Electronic Control go up and down completely randomly.

Pair Corralation between Parsons Corp and Electronic Control

Considering the 90-day investment horizon Parsons Corp is expected to generate 52.63 times less return on investment than Electronic Control. But when comparing it to its historical volatility, Parsons Corp is 54.42 times less risky than Electronic Control. It trades about 0.1 of its potential returns per unit of risk. Electronic Control Security is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2.60  in Electronic Control Security on September 29, 2024 and sell it today you would lose (2.52) from holding Electronic Control Security or give up 96.92% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

Parsons Corp  vs.  Electronic Control Security

Parsons Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Parsons Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain 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.

Electronic Control

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Electronic Control Security are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal fundamental indicators, Electronic Control unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Parsons Corp and Electronic Control

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

The idea behind Parsons Corp and Electronic Control Security 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.