Correlation Between Illinois Tool and CVD Equipment

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

Diversification Opportunities for Illinois Tool and CVD Equipment

-0.45

Correlation Coefficient

Illinois Tool  CVD Equipment

Very good diversification

The 3 months correlation between Illinois and CVD is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and CVD Equipment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVD Equipment 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 CVD Equipment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVD Equipment has no effect on the direction of Illinois Tool i.e., Illinois Tool and CVD Equipment go up and down completely randomly.

Pair Corralation between Illinois Tool and CVD Equipment

Considering the 90-day investment horizon Illinois Tool Works is expected to generate 0.36 times more return on investment than CVD Equipment. However, Illinois Tool Works is 2.79 times less risky than CVD Equipment. It trades about 0.01 of its potential returns per unit of risk. CVD Equipment is currently generating about -0.11 per unit of risk. If you would invest  25,504  in Illinois Tool Works on December 27, 2024 and sell it today you would earn a total of  85.00  from holding Illinois Tool Works or generate 0.33% 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.  CVD Equipment

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.

CVD Equipment

Risk-Adjusted Performance

Very Weak

Over the last 90 days CVD Equipment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Illinois Tool and CVD Equipment

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

The idea behind Illinois Tool Works and CVD Equipment 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.