Correlation Between SP High and Parker Hannifin

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

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

Diversification Opportunities for SP High and Parker Hannifin

0.09

Correlation Coefficient

SP High  Parker Hannifin

Significant diversification

The 3 months correlation between SPHYDA and Parker is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding SP High Yield and Parker Hannifin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parker Hannifin and SP High 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 SP High Yield 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 SP High i.e., SP High and Parker Hannifin go up and down completely randomly.

Pair Corralation between SP High and Parker Hannifin

Assuming the 90 days trading horizon SP High Yield is expected to under-perform the Parker Hannifin. But the index apears to be less risky and, when comparing its historical volatility, SP High Yield is 2.37 times less risky than Parker Hannifin. The index trades about -0.13 of its potential returns per unit of risk. The Parker Hannifin is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  62,035  in Parker Hannifin on September 25, 2024 and sell it today you would earn a total of  3,222  from holding Parker Hannifin or generate 5.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

SP High Yield  vs.  Parker Hannifin

Pair Trading with SP High and Parker Hannifin

The main advantage of trading using opposite SP High and Parker Hannifin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SP High 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 SP High Yield 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.