Correlation Between Illinois Tool and Franklin Electric

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

Diversification Opportunities for Illinois Tool and Franklin Electric

0.8

Correlation Coefficient

Illinois Tool  Franklin Electric

Very poor diversification

The 3 months correlation between Illinois and Franklin is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and Franklin Electric Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Electric 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 Franklin Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Electric has no effect on the direction of Illinois Tool i.e., Illinois Tool and Franklin Electric go up and down completely randomly.

Pair Corralation between Illinois Tool and Franklin Electric

Considering the 90-day investment horizon Illinois Tool Works is expected to under-perform the Franklin Electric. But the stock apears to be less risky and, when comparing its historical volatility, Illinois Tool Works is 1.06 times less risky than Franklin Electric. The stock trades about -0.03 of its potential returns per unit of risk. The Franklin Electric Co is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  9,702  in Franklin Electric Co on December 30, 2024 and sell it today you would lose (242.00) from holding Franklin Electric Co or give up 2.49% of portfolio value over 90 days.

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

Illinois Tool Works  vs.  Franklin Electric Co

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.

Franklin Electric

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Illinois Tool and Franklin Electric

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

The idea behind Illinois Tool Works and Franklin Electric Co 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.