Correlation Between Parker Hannifin and Encore Capital

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

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

Diversification Opportunities for Parker Hannifin and Encore Capital

0.5

Correlation Coefficient

Parker Hannifin  Encore Capital

Very weak diversification

The 3 months correlation between Parker and Encore is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Parker Hannifin and Encore Capital Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Encore Capital Group 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 Encore Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Encore Capital Group has no effect on the direction of Parker Hannifin i.e., Parker Hannifin and Encore Capital go up and down completely randomly.

Pair Corralation between Parker Hannifin and Encore Capital

Allowing for the 90-day total investment horizon Parker Hannifin is expected to generate 0.82 times more return on investment than Encore Capital. However, Parker Hannifin is 1.22 times less risky than Encore Capital. It trades about 0.23 of its potential returns per unit of risk. Encore Capital Group is currently generating about 0.02 per unit of risk. If you would invest  57,384  in Parker Hannifin on September 5, 2024 and sell it today you would earn a total of  12,706  from holding Parker Hannifin or generate 22.14% return on investment over 90 days.

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

Parker Hannifin  vs.  Encore Capital Group

Parker Hannifin

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Parker Hannifin are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady technical indicators, Parker Hannifin demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Encore Capital Group

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Encore Capital Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Encore Capital is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Parker Hannifin and Encore Capital

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

The idea behind Parker Hannifin and Encore Capital Group 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.