Correlation Between Illinois Tool and Weichai Power

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

Diversification Opportunities for Illinois Tool and Weichai Power

0.0

Correlation Coefficient

Illinois Tool  Weichai Power

Pay attention - limited upside

The 3 months correlation between Illinois and Weichai is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and Weichai Power Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Weichai Power 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 Weichai Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Weichai Power has no effect on the direction of Illinois Tool i.e., Illinois Tool and Weichai Power go up and down completely randomly.

Pair Corralation between Illinois Tool and Weichai Power

If you would invest  25,333  in Illinois Tool Works on December 29, 2024 and sell it today you would lose (137.00) from holding Illinois Tool Works or give up 0.54% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Illinois Tool Works  vs.  Weichai Power Co

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.

Weichai Power

Risk-Adjusted Performance

Very Weak

Over the last 90 days Weichai Power Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Weichai Power is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Illinois Tool and Weichai Power

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

The idea behind Illinois Tool Works and Weichai Power Co 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.