Correlation Between Nordson and Illinois Tool

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

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

Diversification Opportunities for Nordson and Illinois Tool

0.65

Correlation Coefficient

Nordson  Illinois Tool

Poor diversification

The 3 months correlation between Nordson and Illinois is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Nordson 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 Nordson 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 Nordson 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 Nordson i.e., Nordson and Illinois Tool go up and down completely randomly.

Pair Corralation between Nordson and Illinois Tool

Given the investment horizon of 90 days Nordson is expected to under-perform the Illinois Tool. But the stock apears to be less risky and, when comparing its historical volatility, Nordson is 1.06 times less risky than Illinois Tool. The stock trades about -0.02 of its potential returns per unit of risk. The Illinois Tool Works is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  25,725  in Illinois Tool Works on December 26, 2024 and sell it today you would lose (142.00) from holding Illinois Tool Works or give up 0.55% of portfolio value over 90 days.

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

Nordson  vs.  Illinois Tool Works

Nordson

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nordson has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Nordson is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

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.

Pair Trading with Nordson and Illinois Tool

The main advantage of trading using opposite Nordson and Illinois Tool positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nordson 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 Nordson 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.