Correlation Between Illinois Tool and Hillenbrand

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

Diversification Opportunities for Illinois Tool and Hillenbrand

0.88

Correlation Coefficient

Illinois Tool  Hillenbrand

Very poor diversification

The 3 months correlation between Illinois and Hillenbrand is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and Hillenbrand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hillenbrand 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 Hillenbrand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hillenbrand has no effect on the direction of Illinois Tool i.e., Illinois Tool and Hillenbrand go up and down completely randomly.

Pair Corralation between Illinois Tool and Hillenbrand

Considering the 90-day investment horizon Illinois Tool Works is expected to generate 0.5 times more return on investment than Hillenbrand. However, Illinois Tool Works is 1.99 times less risky than Hillenbrand. It trades about 0.05 of its potential returns per unit of risk. Hillenbrand is currently generating about -0.01 per unit of risk. If you would invest  21,073  in Illinois Tool Works on September 18, 2024 and sell it today you would earn a total of  5,893  from holding Illinois Tool Works or generate 27.96% return on investment over 90 days.

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

Illinois Tool Works  vs.  Hillenbrand

Illinois Tool Works

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Illinois Tool Works are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Illinois Tool may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Hillenbrand

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hillenbrand are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward indicators, Hillenbrand demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Illinois Tool and Hillenbrand

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

The idea behind Illinois Tool Works and Hillenbrand 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.