Correlation Between Parker Hannifin and Stepan

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

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

Diversification Opportunities for Parker Hannifin and Stepan

0.48

Correlation Coefficient

Parker Hannifin  Stepan

Very weak diversification

The 3 months correlation between Parker and Stepan is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Parker Hannifin and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company 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 Stepan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stepan Company has no effect on the direction of Parker Hannifin i.e., Parker Hannifin and Stepan go up and down completely randomly.

Pair Corralation between Parker Hannifin and Stepan

Allowing for the 90-day total investment horizon Parker Hannifin is expected to generate 0.82 times more return on investment than Stepan. However, Parker Hannifin is 1.22 times less risky than Stepan. It trades about 0.16 of its potential returns per unit of risk. Stepan Company is currently generating about 0.01 per unit of risk. If you would invest  59,537  in Parker Hannifin on September 14, 2024 and sell it today you would earn a total of  8,720  from holding Parker Hannifin or generate 14.65% 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.  Stepan Company

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 fairly unsteady technical indicators, Parker Hannifin demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Stepan Company

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Stepan Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Stepan is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Parker Hannifin and Stepan

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

The idea behind Parker Hannifin and Stepan Company 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.