Correlation Between Illinois Tool and Smith AO
Can any of the company-specific risk be diversified away by investing in both Illinois Tool and Smith AO 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 Smith AO 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 Smith AO, you can compare the effects of market volatilities on Illinois Tool and Smith AO 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 Smith AO. Check out your portfolio center. Please also check ongoing floating volatility patterns of Illinois Tool and Smith AO.
Diversification Opportunities for Illinois Tool and Smith AO
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Illinois and Smith is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and Smith AO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith AO 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 Smith AO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smith AO has no effect on the direction of Illinois Tool i.e., Illinois Tool and Smith AO go up and down completely randomly.
Pair Corralation between Illinois Tool and Smith AO
Considering the 90-day investment horizon Illinois Tool is expected to generate 1.53 times less return on investment than Smith AO. But when comparing it to its historical volatility, Illinois Tool Works is 1.42 times less risky than Smith AO. It trades about 0.03 of its potential returns per unit of risk. Smith AO is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 5,760 in Smith AO on October 20, 2024 and sell it today you would earn a total of 1,421 from holding Smith AO or generate 24.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Illinois Tool Works vs. Smith AO
Performance |
| Timeline |
| Illinois Tool Works |
| Smith AO |
Illinois Tool and Smith AO Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Illinois Tool and Smith AO
The main advantage of trading using opposite Illinois Tool and Smith AO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Illinois Tool position performs unexpectedly, Smith AO 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 Smith AO will offset losses from the drop in Smith AO's long position.| Illinois Tool vs. Pentair PLC | Illinois Tool vs. Parker Hannifin | Illinois Tool vs. Emerson Electric | Illinois Tool vs. Smith AO |
| Smith AO vs. Dover | Smith AO vs. Illinois Tool Works | Smith AO vs. Xylem Inc | Smith AO vs. Franklin Electric Co |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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