Correlation Between Illinois Tool and Thermon Group

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

Diversification Opportunities for Illinois Tool and Thermon Group

0.71

Correlation Coefficient

Illinois Tool  Thermon Group

Poor diversification

The 3 months correlation between Illinois and Thermon is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and Thermon Group Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thermon Group Holdings 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 Thermon Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thermon Group Holdings has no effect on the direction of Illinois Tool i.e., Illinois Tool and Thermon Group go up and down completely randomly.

Pair Corralation between Illinois Tool and Thermon Group

Considering the 90-day investment horizon Illinois Tool is expected to generate 15.9 times less return on investment than Thermon Group. But when comparing it to its historical volatility, Illinois Tool Works is 1.64 times less risky than Thermon Group. It trades about 0.01 of its potential returns per unit of risk. Thermon Group Holdings is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,862  in Thermon Group Holdings on October 23, 2024 and sell it today you would earn a total of  72.00  from holding Thermon Group Holdings or generate 2.52% 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.  Thermon Group Holdings

Illinois Tool Works

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Illinois Tool Works are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Thermon Group Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Thermon Group Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady technical indicators, Thermon Group may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Illinois Tool and Thermon Group

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

The idea behind Illinois Tool Works and Thermon Group Holdings 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.