Correlation Between Parker Hannifin and Aris Water

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

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

Diversification Opportunities for Parker Hannifin and Aris Water

0.9

Correlation Coefficient

Parker Hannifin  Aris Water

Almost no diversification

The 3 months correlation between Parker and Aris is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Parker Hannifin and Aris Water Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aris Water Solutions 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 Aris Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aris Water Solutions has no effect on the direction of Parker Hannifin i.e., Parker Hannifin and Aris Water go up and down completely randomly.

Pair Corralation between Parker Hannifin and Aris Water

Allowing for the 90-day total investment horizon Parker Hannifin is expected to under-perform the Aris Water. But the stock apears to be less risky and, when comparing its historical volatility, Parker Hannifin is 2.18 times less risky than Aris Water. The stock trades about -0.34 of its potential returns per unit of risk. The Aris Water Solutions is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  2,692  in Aris Water Solutions on September 25, 2024 and sell it today you would lose (168.00) from holding Aris Water Solutions or give up 6.24% of portfolio value over 90 days.

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

Parker Hannifin  vs.  Aris Water Solutions

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.

Aris Water Solutions

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aris Water Solutions are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak forward indicators, Aris Water unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Parker Hannifin and Aris Water

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

The idea behind Parker Hannifin and Aris Water Solutions 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.