Correlation Between Parker Hannifin and Smith AO

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

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

Diversification Opportunities for Parker Hannifin and Smith AO

0.65

Correlation Coefficient

Parker Hannifin  Smith AO

Poor diversification

The 3 months correlation between Parker and Smith is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Parker Hannifin and Smith AO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith AO 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 Smith AO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smith AO has no effect on the direction of Parker Hannifin i.e., Parker Hannifin and Smith AO go up and down completely randomly.

Pair Corralation between Parker Hannifin and Smith AO

Allowing for the 90-day total investment horizon Parker Hannifin is expected to generate 1.95 times more return on investment than Smith AO. However, Parker Hannifin is 1.95 times more volatile than Smith AO. It trades about -0.03 of its potential returns per unit of risk. Smith AO is currently generating about -0.08 per unit of risk. If you would invest  66,121  in Parker Hannifin on January 27, 2025 and sell it today you would lose (6,319) from holding Parker Hannifin or give up 9.56% of portfolio value over 90 days.

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

Parker Hannifin  vs.  Smith AO

Parker Hannifin

Risk-Adjusted Performance

Very Weak

Over the last 90 days Parker Hannifin has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's technical indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Smith AO

Risk-Adjusted Performance

Very Weak

Over the last 90 days Smith AO has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Parker Hannifin and Smith AO

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

The idea behind Parker Hannifin and Smith AO 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.