Correlation Between Illinois Tool and Nordson

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

Diversification Opportunities for Illinois Tool and Nordson

0.65

Correlation Coefficient

Illinois Tool  Nordson

Poor diversification

The 3 months correlation between Illinois and Nordson is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and Nordson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nordson 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 Nordson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nordson has no effect on the direction of Illinois Tool i.e., Illinois Tool and Nordson go up and down completely randomly.

Pair Corralation between Illinois Tool and Nordson

Considering the 90-day investment horizon Illinois Tool Works is expected to generate 0.87 times more return on investment than Nordson. However, Illinois Tool Works is 1.15 times less risky than Nordson. It trades about 0.18 of its potential returns per unit of risk. Nordson is currently generating about 0.04 per unit of risk. If you would invest  24,534  in Illinois Tool Works on September 8, 2024 and sell it today you would earn a total of  2,819  from holding Illinois Tool Works or generate 11.49% return on investment over 90 days.

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

Illinois Tool Works  vs.  Nordson

Illinois Tool Works

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Illinois Tool Works are ranked lower than 14 (%) 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.

Nordson

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nordson are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Nordson is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Illinois Tool and Nordson

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

The idea behind Illinois Tool Works and Nordson 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.