Correlation Between Illinois Tool and Generac Holdings

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

Diversification Opportunities for Illinois Tool and Generac Holdings

-0.27

Correlation Coefficient

Illinois Tool  Generac Holdings

Very good diversification

The 3 months correlation between Illinois and Generac is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and Generac Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Generac Holdings 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 Generac Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Generac Holdings has no effect on the direction of Illinois Tool i.e., Illinois Tool and Generac Holdings go up and down completely randomly.

Pair Corralation between Illinois Tool and Generac Holdings

Considering the 90-day investment horizon Illinois Tool Works is expected to generate 0.65 times more return on investment than Generac Holdings. However, Illinois Tool Works is 1.53 times less risky than Generac Holdings. It trades about -0.03 of its potential returns per unit of risk. Generac Holdings is currently generating about -0.14 per unit of risk. If you would invest  25,333  in Illinois Tool Works on December 29, 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.  Generac Holdings

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.

Generac Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Generac Holdings 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 rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Illinois Tool and Generac Holdings

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

The idea behind Illinois Tool Works and Generac Holdings 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.