Correlation Between Illinois Tool and Ametek

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

Diversification Opportunities for Illinois Tool and Ametek

0.67

Correlation Coefficient

Illinois Tool  Ametek

Poor diversification

The 3 months correlation between Illinois and Ametek is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and Ametek Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ametek Inc 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 Ametek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ametek Inc has no effect on the direction of Illinois Tool i.e., Illinois Tool and Ametek go up and down completely randomly.

Pair Corralation between Illinois Tool and Ametek

Considering the 90-day investment horizon Illinois Tool Works is expected to generate 1.11 times more return on investment than Ametek. However, Illinois Tool is 1.11 times more volatile than Ametek Inc. It trades about -0.03 of its potential returns per unit of risk. Ametek Inc is currently generating about -0.07 per unit of risk. If you would invest  25,333  in Illinois Tool Works on December 28, 2024 and sell it today you would lose (687.00) from holding Illinois Tool Works or give up 2.71% of portfolio value over 90 days.

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

Illinois Tool Works  vs.  Ametek Inc

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.

Ametek Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ametek Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, Ametek is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Illinois Tool and Ametek

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

The idea behind Illinois Tool Works and Ametek Inc 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.