Correlation Between Illinois Tool and Graco

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

Diversification Opportunities for Illinois Tool and Graco

0.7

Correlation Coefficient

Illinois Tool  Graco

Poor diversification

The 3 months correlation between Illinois and Graco is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and Graco Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Graco 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 Graco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Graco Inc has no effect on the direction of Illinois Tool i.e., Illinois Tool and Graco go up and down completely randomly.

Pair Corralation between Illinois Tool and Graco

Considering the 90-day investment horizon Illinois Tool is expected to generate 14.0 times less return on investment than Graco. In addition to that, Illinois Tool is 1.14 times more volatile than Graco Inc. It trades about 0.0 of its total potential returns per unit of risk. Graco Inc is currently generating about 0.0 per unit of volatility. If you would invest  8,350  in Graco Inc on December 29, 2024 and sell it today you would lose (8.00) from holding Graco Inc or give up 0.1% 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.  Graco 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.

Graco Inc

Risk-Adjusted Performance

Weak

Over the last 90 days Graco Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Graco is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Illinois Tool and Graco

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

The idea behind Illinois Tool Works and Graco 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..