Correlation Between Illinois Tool and Crane

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

Diversification Opportunities for Illinois Tool and Crane

0.92

Correlation Coefficient

Illinois Tool  Crane

Almost no diversification

The 3 months correlation between Illinois and Crane is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and Crane Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crane Company 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 Crane. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crane Company has no effect on the direction of Illinois Tool i.e., Illinois Tool and Crane go up and down completely randomly.

Pair Corralation between Illinois Tool and Crane

Considering the 90-day investment horizon Illinois Tool is expected to generate 6.66 times less return on investment than Crane. But when comparing it to its historical volatility, Illinois Tool Works is 2.02 times less risky than Crane. It trades about 0.02 of its potential returns per unit of risk. Crane Company is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  11,632  in Crane Company on September 18, 2024 and sell it today you would earn a total of  4,493  from holding Crane Company or generate 38.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.6%
Values	Daily Returns

Illinois Tool Works  vs.  Crane Company

Illinois Tool Works

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Illinois Tool Works are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Illinois Tool may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Crane Company

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Crane Company are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Crane may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Illinois Tool and Crane

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

The idea behind Illinois Tool Works and Crane Company 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.