Correlation Between Parker Hannifin and CSW Industrials

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

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

Diversification Opportunities for Parker Hannifin and CSW Industrials

0.8

Correlation Coefficient

Parker Hannifin  CSW Industrials

Very poor diversification

The 3 months correlation between Parker and CSW is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Parker Hannifin and CSW Industrials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CSW Industrials 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 CSW Industrials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CSW Industrials has no effect on the direction of Parker Hannifin i.e., Parker Hannifin and CSW Industrials go up and down completely randomly.

Pair Corralation between Parker Hannifin and CSW Industrials

Allowing for the 90-day total investment horizon Parker Hannifin is expected to generate 1.15 times less return on investment than CSW Industrials. But when comparing it to its historical volatility, Parker Hannifin is 1.02 times less risky than CSW Industrials. It trades about 0.09 of its potential returns per unit of risk. CSW Industrials is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  10,442  in CSW Industrials on February 3, 2024 and sell it today you would earn a total of  13,745  from holding CSW Industrials or generate 131.63% return on investment over 90 days.

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

Parker Hannifin  vs.  CSW Industrials

Parker Hannifin

Risk-Adjusted Performance

6 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Parker Hannifin are ranked lower than 6 (%) 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.

CSW Industrials

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CSW Industrials are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal basic indicators, CSW Industrials may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Parker Hannifin and CSW Industrials

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

The idea behind Parker Hannifin and CSW Industrials 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.