Correlation Between Illinois Tool and Boiron SA

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

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

Diversification Opportunities for Illinois Tool and Boiron SA

0.25

Correlation Coefficient

Illinois Tool  Boiron SA

Modest diversification

The 3 months correlation between Illinois and Boiron is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and Boiron SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boiron SA and Illinois Tool 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 Illinois Tool Works are associated (or correlated) with Boiron SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boiron SA has no effect on the direction of Illinois Tool i.e., Illinois Tool and Boiron SA go up and down completely randomly.

Pair Corralation between Illinois Tool and Boiron SA

Assuming the 90 days horizon Illinois Tool Works is expected to generate 0.79 times more return on investment than Boiron SA. However, Illinois Tool Works is 1.27 times less risky than Boiron SA. It trades about -0.04 of its potential returns per unit of risk. Boiron SA is currently generating about -0.05 per unit of risk. If you would invest  24,340  in Illinois Tool Works on December 30, 2024 and sell it today you would lose (1,020) from holding Illinois Tool Works or give up 4.19% of portfolio value over 90 days.

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

Illinois Tool Works  vs.  Boiron SA

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. Despite nearly stable basic indicators, Illinois Tool is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Boiron SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Boiron SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Illinois Tool and Boiron SA

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

The idea behind Illinois Tool Works and Boiron SA 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.