Correlation Between Donaldson and Park Ohio

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

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

Diversification Opportunities for Donaldson and Park Ohio

0.85

Correlation Coefficient

Donaldson  Park Ohio

Very poor diversification

The 3 months correlation between Donaldson and Park is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Donaldson and Park Ohio Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Park Ohio Holdings and Donaldson 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 Donaldson are associated (or correlated) with Park Ohio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Park Ohio Holdings has no effect on the direction of Donaldson i.e., Donaldson and Park Ohio go up and down completely randomly.

Pair Corralation between Donaldson and Park Ohio

Considering the 90-day investment horizon Donaldson is expected to generate 1.45 times less return on investment than Park Ohio. But when comparing it to its historical volatility, Donaldson is 2.83 times less risky than Park Ohio. It trades about 0.17 of its potential returns per unit of risk. Park Ohio Holdings is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,851  in Park Ohio Holdings on September 3, 2024 and sell it today you would earn a total of  366.00  from holding Park Ohio Holdings or generate 12.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Donaldson  vs.  Park Ohio Holdings

Donaldson

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Donaldson are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak fundamental indicators, Donaldson may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Park Ohio Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Park Ohio Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Park Ohio demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Donaldson and Park Ohio

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

The idea behind Donaldson and Park Ohio Holdings 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 Commodity Directory module to find actively traded commodities issued by global exchanges.