Correlation Between Illinois Tool and LPKF Laser

Can any of the company-specific risk be diversified away by investing in both Illinois Tool and LPKF Laser 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 LPKF Laser 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 LPKF Laser Electronics, you can compare the effects of market volatilities on Illinois Tool and LPKF Laser 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 LPKF Laser. Check out your portfolio center. Please also check ongoing floating volatility patterns of Illinois Tool and LPKF Laser.

Diversification Opportunities for Illinois Tool and LPKF Laser

-0.5

Correlation Coefficient

Illinois Tool  LPKF Laser

Very good diversification

The 3 months correlation between Illinois and LPKF is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and LPKF Laser Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LPKF Laser Electronics 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 LPKF Laser. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LPKF Laser Electronics has no effect on the direction of Illinois Tool i.e., Illinois Tool and LPKF Laser go up and down completely randomly.

Pair Corralation between Illinois Tool and LPKF Laser

Assuming the 90 days horizon Illinois Tool Works is expected to generate 0.43 times more return on investment than LPKF Laser. However, Illinois Tool Works is 2.33 times less risky than LPKF Laser. It trades about 0.03 of its potential returns per unit of risk. LPKF Laser Electronics is currently generating about -0.01 per unit of risk. If you would invest  21,793  in Illinois Tool Works on September 26, 2024 and sell it today you would earn a total of  2,837  from holding Illinois Tool Works or generate 13.02% return on investment over 90 days.

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

Illinois Tool Works  vs.  LPKF Laser Electronics

Illinois Tool Works

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Illinois Tool Works are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Illinois Tool may actually be approaching a critical reversion point that can send shares even higher in January 2025.

LPKF Laser Electronics

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LPKF Laser Electronics are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, LPKF Laser may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Illinois Tool and LPKF Laser

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

The idea behind Illinois Tool Works and LPKF Laser Electronics 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.