Correlation Between Illinois Tool and Rotork Plc

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

Diversification Opportunities for Illinois Tool and Rotork Plc

-0.68

Correlation Coefficient

Illinois Tool  Rotork Plc

Excellent diversification

The 3 months correlation between Illinois and Rotork is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and Rotork plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rotork plc 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 Rotork Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rotork plc has no effect on the direction of Illinois Tool i.e., Illinois Tool and Rotork Plc go up and down completely randomly.

Pair Corralation between Illinois Tool and Rotork Plc

Considering the 90-day investment horizon Illinois Tool Works is expected to generate 0.21 times more return on investment than Rotork Plc. However, Illinois Tool Works is 4.78 times less risky than Rotork Plc. It trades about 0.17 of its potential returns per unit of risk. Rotork plc is currently generating about 0.02 per unit of risk. If you would invest  24,679  in Illinois Tool Works on September 12, 2024 and sell it today you would earn a total of  2,696  from holding Illinois Tool Works or generate 10.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Illinois Tool Works  vs.  Rotork plc

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.

Rotork plc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Rotork plc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Rotork Plc may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Illinois Tool and Rotork Plc

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

The idea behind Illinois Tool Works and Rotork plc 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..