Correlation Between Illinois Tool and McPhy Energy
Can any of the company-specific risk be diversified away by investing in both Illinois Tool and McPhy Energy 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 McPhy Energy 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 McPhy Energy SA, you can compare the effects of market volatilities on Illinois Tool and McPhy Energy 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 McPhy Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Illinois Tool and McPhy Energy.
Diversification Opportunities for Illinois Tool and McPhy Energy
-0.86 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Illinois and McPhy is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and McPhy Energy SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McPhy Energy SA 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 McPhy Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McPhy Energy SA has no effect on the direction of Illinois Tool i.e., Illinois Tool and McPhy Energy go up and down completely randomly.
Pair Corralation between Illinois Tool and McPhy Energy
Assuming the 90 days horizon Illinois Tool Works is expected to generate 0.21 times more return on investment than McPhy Energy. However, Illinois Tool Works is 4.7 times less risky than McPhy Energy. It trades about 0.4 of its potential returns per unit of risk. McPhy Energy SA is currently generating about -0.46 per unit of risk. If you would invest 24,000 in Illinois Tool Works on September 2, 2024 and sell it today you would earn a total of 2,260 from holding Illinois Tool Works or generate 9.42% 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. McPhy Energy SA
Performance |
| Timeline |
| Illinois Tool Works |
| McPhy Energy SA |
Illinois Tool and McPhy Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Illinois Tool and McPhy Energy
The main advantage of trading using opposite Illinois Tool and McPhy Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Illinois Tool position performs unexpectedly, McPhy Energy 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 McPhy Energy will offset losses from the drop in McPhy Energy's long position.| Illinois Tool vs. ABB | Illinois Tool vs. Emerson Electric Co | Illinois Tool vs. Superior Plus Corp | Illinois Tool vs. NMI Holdings |
| McPhy Energy vs. ABB | McPhy Energy vs. Emerson Electric Co | McPhy Energy vs. Superior Plus Corp | McPhy Energy vs. NMI Holdings |
Check out your portfolio center.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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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