Correlation Between Illinois Tool and Chart Industries

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

Diversification Opportunities for Illinois Tool and Chart Industries

0.04

Correlation Coefficient

Illinois Tool  Chart Industries

Significant diversification

The 3 months correlation between Illinois and Chart is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and Chart Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chart Industries 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 Chart Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chart Industries has no effect on the direction of Illinois Tool i.e., Illinois Tool and Chart Industries go up and down completely randomly.

Pair Corralation between Illinois Tool and Chart Industries

Considering the 90-day investment horizon Illinois Tool is expected to generate 79.05 times less return on investment than Chart Industries. But when comparing it to its historical volatility, Illinois Tool Works is 2.6 times less risky than Chart Industries. It trades about 0.01 of its potential returns per unit of risk. Chart Industries is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  18,860  in Chart Industries on October 23, 2024 and sell it today you would earn a total of  2,564  from holding Chart Industries or generate 13.59% return on investment over 90 days.

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

Illinois Tool Works  vs.  Chart Industries

Illinois Tool Works

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Illinois Tool Works are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Chart Industries

Risk-Adjusted Performance

27 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Chart Industries are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain essential indicators, Chart Industries unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Illinois Tool and Chart Industries

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

The idea behind Illinois Tool Works and Chart Industries 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.