Correlation Between Parker Hannifin and NRG Energy

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

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

Diversification Opportunities for Parker Hannifin and NRG Energy

0.76

Correlation Coefficient

Parker Hannifin  NRG Energy

Poor diversification

The 3 months correlation between Parker and NRG is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Parker Hannifin and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy 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 NRG Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NRG Energy has no effect on the direction of Parker Hannifin i.e., Parker Hannifin and NRG Energy go up and down completely randomly.

Pair Corralation between Parker Hannifin and NRG Energy

Allowing for the 90-day total investment horizon Parker Hannifin is expected to under-perform the NRG Energy. But the stock apears to be less risky and, when comparing its historical volatility, Parker Hannifin is 2.74 times less risky than NRG Energy. The stock trades about -0.34 of its potential returns per unit of risk. The NRG Energy is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  9,187  in NRG Energy on September 25, 2024 and sell it today you would earn a total of  121.00  from holding NRG Energy or generate 1.32% return on investment over 90 days.

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

Parker Hannifin  vs.  NRG Energy

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.

NRG Energy

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, NRG Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Parker Hannifin and NRG Energy

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

The idea behind Parker Hannifin and NRG Energy 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..