Correlation Between Illinois Tool and Kone Oyj

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

Diversification Opportunities for Illinois Tool and Kone Oyj

-0.35

Correlation Coefficient

Illinois Tool  Kone Oyj

Very good diversification

The 3 months correlation between Illinois and Kone is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and Kone Oyj ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kone Oyj ADR 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 Kone Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kone Oyj ADR has no effect on the direction of Illinois Tool i.e., Illinois Tool and Kone Oyj go up and down completely randomly.

Pair Corralation between Illinois Tool and Kone Oyj

Considering the 90-day investment horizon Illinois Tool is expected to generate 1.46 times less return on investment than Kone Oyj. But when comparing it to its historical volatility, Illinois Tool Works is 1.43 times less risky than Kone Oyj. It trades about 0.06 of its potential returns per unit of risk. Kone Oyj ADR is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,129  in Kone Oyj ADR on September 2, 2024 and sell it today you would earn a total of  450.00  from holding Kone Oyj ADR or generate 21.14% return on investment over 90 days.

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

Illinois Tool Works  vs.  Kone Oyj ADR

Illinois Tool Works

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Illinois Tool Works are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Illinois Tool may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Kone Oyj ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kone Oyj ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking indicators, Kone Oyj is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Illinois Tool and Kone Oyj

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

The idea behind Illinois Tool Works and Kone Oyj ADR 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.