Correlation Between Xylem and Parker Hannifin

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

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

Diversification Opportunities for Xylem and Parker Hannifin

-0.59

Correlation Coefficient

Xylem  Parker Hannifin

Excellent diversification

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

Pair Corralation between Xylem and Parker Hannifin

Considering the 90-day investment horizon Xylem Inc is expected to generate 1.5 times more return on investment than Parker Hannifin. However, Xylem is 1.5 times more volatile than Parker Hannifin. It trades about -0.1 of its potential returns per unit of risk. Parker Hannifin is currently generating about -0.26 per unit of risk. If you would invest  12,248  in Xylem Inc on September 21, 2024 and sell it today you would lose (463.00) from holding Xylem Inc or give up 3.78% of portfolio value over 90 days.

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

Xylem Inc  vs.  Parker Hannifin

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.

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.

Pair Trading with Xylem and Parker Hannifin

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

The idea behind Xylem Inc and Parker Hannifin 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.