Correlation Between Micron Technology and Illinois Tool

Can any of the company-specific risk be diversified away by investing in both Micron Technology and Illinois Tool 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 Micron Technology and Illinois Tool into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Micron Technology and Illinois Tool Works, you can compare the effects of market volatilities on Micron Technology and Illinois Tool 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 Micron Technology with a short position of Illinois Tool. Check out your portfolio center. Please also check ongoing floating volatility patterns of Micron Technology and Illinois Tool.

Diversification Opportunities for Micron Technology and Illinois Tool

-0.03

Correlation Coefficient

Micron Technology  Illinois Tool

Good diversification

The 3 months correlation between Micron and Illinois is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Micron Technology and Illinois Tool Works in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Illinois Tool Works and Micron Technology 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 Micron Technology are associated (or correlated) with Illinois Tool. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Illinois Tool Works has no effect on the direction of Micron Technology i.e., Micron Technology and Illinois Tool go up and down completely randomly.

Pair Corralation between Micron Technology and Illinois Tool

Allowing for the 90-day total investment horizon Micron Technology is expected to generate 3.01 times more return on investment than Illinois Tool. However, Micron Technology is 3.01 times more volatile than Illinois Tool Works. It trades about 0.04 of its potential returns per unit of risk. Illinois Tool Works is currently generating about 0.06 per unit of risk. If you would invest  7,579  in Micron Technology on September 23, 2024 and sell it today you would earn a total of  1,433  from holding Micron Technology or generate 18.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.54%
Values	Daily Returns

Micron Technology  vs.  Illinois Tool Works

Micron Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Micron Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Micron Technology is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Illinois Tool Works

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Illinois Tool Works are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Illinois Tool may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Micron Technology and Illinois Tool

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

The idea behind Micron Technology and Illinois Tool Works 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.