Correlation Between Illinois Tool and NetApp
Can any of the company-specific risk be diversified away by investing in both Illinois Tool and NetApp 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 NetApp 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 NetApp Inc, you can compare the effects of market volatilities on Illinois Tool and NetApp 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 NetApp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Illinois Tool and NetApp.
Diversification Opportunities for Illinois Tool and NetApp
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Illinois and NetApp is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and NetApp Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetApp Inc 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 NetApp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NetApp Inc has no effect on the direction of Illinois Tool i.e., Illinois Tool and NetApp go up and down completely randomly.
Pair Corralation between Illinois Tool and NetApp
Assuming the 90 days horizon Illinois Tool is expected to generate 2.68 times less return on investment than NetApp. But when comparing it to its historical volatility, Illinois Tool Works is 1.83 times less risky than NetApp. It trades about 0.05 of its potential returns per unit of risk. NetApp Inc is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 5,776 in NetApp Inc on September 4, 2024 and sell it today you would earn a total of 5,678 from holding NetApp Inc or generate 98.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Illinois Tool Works vs. NetApp Inc
Performance |
| Timeline |
| Illinois Tool Works |
| NetApp Inc |
Illinois Tool and NetApp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Illinois Tool and NetApp
The main advantage of trading using opposite Illinois Tool and NetApp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Illinois Tool position performs unexpectedly, NetApp 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 NetApp will offset losses from the drop in NetApp's long position.| Illinois Tool vs. Schneider Electric SE | Illinois Tool vs. Eaton PLC | Illinois Tool vs. ABB | Illinois Tool vs. 3M Company |
| NetApp vs. Teradata Corp | NetApp vs. Superior Plus Corp | NetApp vs. NMI Holdings | NetApp vs. Origin Agritech |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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