Correlation Between 3M and Parker Hannifin

Can any of the company-specific risk be diversified away by investing in both 3M 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 3M and Parker Hannifin into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 3M Company and Parker Hannifin, you can compare the effects of market volatilities on 3M 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 3M with a short position of Parker Hannifin. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and Parker Hannifin.

Diversification Opportunities for 3M and Parker Hannifin

0.62

Correlation Coefficient

3M  Parker Hannifin

Poor diversification

The 3 months correlation between 3M and Parker is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Parker Hannifin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parker Hannifin and 3M 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 3M Company 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 3M i.e., 3M and Parker Hannifin go up and down completely randomly.

Pair Corralation between 3M and Parker Hannifin

Assuming the 90 days horizon 3M is expected to generate 4.9 times less return on investment than Parker Hannifin. But when comparing it to its historical volatility, 3M Company is 1.55 times less risky than Parker Hannifin. It trades about 0.05 of its potential returns per unit of risk. Parker Hannifin is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  54,401  in Parker Hannifin on August 31, 2024 and sell it today you would earn a total of  12,319  from holding Parker Hannifin or generate 22.64% return on investment over 90 days.

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

3M Company  vs.  Parker Hannifin

3M Company

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, 3M is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Parker Hannifin

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Parker Hannifin are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Parker Hannifin reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with 3M and Parker Hannifin

The main advantage of trading using opposite 3M and Parker Hannifin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M 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 3M Company 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.