Correlation Between Illinois Tool and Roper Technologies

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

Diversification Opportunities for Illinois Tool and Roper Technologies

0.24

Correlation Coefficient

Illinois Tool  Roper Technologies

Modest diversification

The 3 months correlation between Illinois and Roper is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and Roper Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Roper Technologies 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 Roper Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Roper Technologies has no effect on the direction of Illinois Tool i.e., Illinois Tool and Roper Technologies go up and down completely randomly.

Pair Corralation between Illinois Tool and Roper Technologies

Assuming the 90 days horizon Illinois Tool Works is expected to under-perform the Roper Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Illinois Tool Works is 1.28 times less risky than Roper Technologies. The stock trades about -0.04 of its potential returns per unit of risk. The Roper Technologies is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  50,377  in Roper Technologies on December 22, 2024 and sell it today you would earn a total of  1,523  from holding Roper Technologies or generate 3.02% return on investment over 90 days.

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

Illinois Tool Works  vs.  Roper Technologies

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.

Roper Technologies

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Roper Technologies are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Roper Technologies is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Illinois Tool and Roper Technologies

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

The idea behind Illinois Tool Works and Roper Technologies 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.