Correlation Between IDEX and Illinois Tool

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

By analyzing existing cross correlation between IDEX Corporation and Illinois Tool Works, you can compare the effects of market volatilities on IDEX and Illinois Tool 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 IDEX with a short position of Illinois Tool. Check out your portfolio center. Please also check ongoing floating volatility patterns of IDEX and Illinois Tool.

Diversification Opportunities for IDEX and Illinois Tool

0.78

Correlation Coefficient

IDEX  Illinois Tool

Poor diversification

The 3 months correlation between IDEX and Illinois is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding IDEX Corp. and Illinois Tool Works in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Illinois Tool Works and IDEX 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 IDEX Corporation are associated (or correlated) with Illinois Tool. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Illinois Tool Works has no effect on the direction of IDEX i.e., IDEX and Illinois Tool go up and down completely randomly.

Pair Corralation between IDEX and Illinois Tool

Considering the 90-day investment horizon IDEX Corporation is expected to under-perform the Illinois Tool. In addition to that, IDEX is 1.23 times more volatile than Illinois Tool Works. It trades about -0.01 of its total potential returns per unit of risk. Illinois Tool Works is currently generating about 0.03 per unit of volatility. If you would invest  22,291  in Illinois Tool Works on November 19, 2024 and sell it today you would earn a total of  3,520  from holding Illinois Tool Works or generate 15.79% return on investment over 90 days.

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

IDEX Corp.  vs.  Illinois Tool Works

IDEX

Risk-Adjusted Performance

Very Weak

Over the last 90 days IDEX Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Illinois Tool Works

Risk-Adjusted Performance

Very Weak

Over the last 90 days Illinois Tool Works has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Illinois Tool is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with IDEX and Illinois Tool

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

The idea behind IDEX Corporation and Illinois Tool Works 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.