Correlation Between Illinois Tool and Siemens AG

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

Diversification Opportunities for Illinois Tool and Siemens AG

0.28

Correlation Coefficient

Illinois Tool  Siemens AG

Modest diversification

The 3 months correlation between Illinois and Siemens is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and Siemens AG Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Siemens AG Class 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 Siemens AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Siemens AG Class has no effect on the direction of Illinois Tool i.e., Illinois Tool and Siemens AG go up and down completely randomly.

Pair Corralation between Illinois Tool and Siemens AG

Considering the 90-day investment horizon Illinois Tool Works is expected to under-perform the Siemens AG. But the stock apears to be less risky and, when comparing its historical volatility, Illinois Tool Works is 1.88 times less risky than Siemens AG. The stock trades about -0.02 of its potential returns per unit of risk. The Siemens AG Class is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  19,690  in Siemens AG Class on December 22, 2024 and sell it today you would earn a total of  5,310  from holding Siemens AG Class or generate 26.97% return on investment over 90 days.

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

Illinois Tool Works  vs.  Siemens AG Class

Illinois Tool Works

Risk-Adjusted Performance

Very Weak

Over the last 90 days Illinois Tool Works has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Siemens AG Class

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Siemens AG Class are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Siemens AG reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Illinois Tool and Siemens AG

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

The idea behind Illinois Tool Works and Siemens AG Class 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.