Correlation Between Illinois Tool and Eaton PLC

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

Diversification Opportunities for Illinois Tool and Eaton PLC

-0.37

Correlation Coefficient

Illinois Tool  Eaton PLC

Very good diversification

The 3 months correlation between Illinois and Eaton is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and Eaton PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eaton PLC 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 Eaton PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eaton PLC has no effect on the direction of Illinois Tool i.e., Illinois Tool and Eaton PLC go up and down completely randomly.

Pair Corralation between Illinois Tool and Eaton PLC

Considering the 90-day investment horizon Illinois Tool Works is expected to generate 0.48 times more return on investment than Eaton PLC. However, Illinois Tool Works is 2.08 times less risky than Eaton PLC. It trades about -0.03 of its potential returns per unit of risk. Eaton PLC is currently generating about -0.09 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 Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Illinois Tool Works  vs.  Eaton PLC

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.

Eaton PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eaton PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Illinois Tool and Eaton PLC

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

The idea behind Illinois Tool Works and Eaton PLC 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.