Correlation Between Illinois Tool and Yokogawa Electric

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

Diversification Opportunities for Illinois Tool and Yokogawa Electric

-0.8

Correlation Coefficient

Illinois Tool  Yokogawa Electric

Pay attention - limited upside

The 3 months correlation between Illinois and Yokogawa is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and Yokogawa Electric Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yokogawa Electric Corp 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 Yokogawa Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yokogawa Electric Corp has no effect on the direction of Illinois Tool i.e., Illinois Tool and Yokogawa Electric go up and down completely randomly.

Pair Corralation between Illinois Tool and Yokogawa Electric

Considering the 90-day investment horizon Illinois Tool Works is expected to generate 0.49 times more return on investment than Yokogawa Electric. However, Illinois Tool Works is 2.04 times less risky than Yokogawa Electric. It trades about 0.28 of its potential returns per unit of risk. Yokogawa Electric Corp is currently generating about -0.01 per unit of risk. If you would invest  26,113  in Illinois Tool Works on September 1, 2024 and sell it today you would earn a total of  1,639  from holding Illinois Tool Works or generate 6.28% return on investment over 90 days.

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

Illinois Tool Works  vs.  Yokogawa Electric Corp

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 weak basic indicators, Illinois Tool may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Yokogawa Electric Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Yokogawa Electric Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Illinois Tool and Yokogawa Electric

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

The idea behind Illinois Tool Works and Yokogawa Electric Corp 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 Valuation module to check real value of public entities based on technical and fundamental data.