Correlation Between Illinois Tool and IHI Corp
Can any of the company-specific risk be diversified away by investing in both Illinois Tool and IHI Corp 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 IHI Corp 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 IHI Corp ADR, you can compare the effects of market volatilities on Illinois Tool and IHI Corp 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 IHI Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Illinois Tool and IHI Corp.
Diversification Opportunities for Illinois Tool and IHI Corp
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Illinois and IHI is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and IHI Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IHI Corp ADR 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 IHI Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IHI Corp ADR has no effect on the direction of Illinois Tool i.e., Illinois Tool and IHI Corp go up and down completely randomly.
Pair Corralation between Illinois Tool and IHI Corp
Considering the 90-day investment horizon Illinois Tool is expected to generate 5.27 times less return on investment than IHI Corp. But when comparing it to its historical volatility, Illinois Tool Works is 5.27 times less risky than IHI Corp. It trades about 0.12 of its potential returns per unit of risk. IHI Corp ADR is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 639.00 in IHI Corp ADR on September 1, 2024 and sell it today you would earn a total of 634.00 from holding IHI Corp ADR or generate 99.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.21% |
| Values | Daily Returns |
Illinois Tool Works vs. IHI Corp ADR
Performance |
| Timeline |
| Illinois Tool Works |
| IHI Corp ADR |
Illinois Tool and IHI Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Illinois Tool and IHI Corp
The main advantage of trading using opposite Illinois Tool and IHI Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Illinois Tool position performs unexpectedly, IHI Corp 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 IHI Corp will offset losses from the drop in IHI Corp's long position.| Illinois Tool vs. Pentair PLC | Illinois Tool vs. Parker Hannifin | Illinois Tool vs. Emerson Electric | Illinois Tool vs. Smith AO |
| IHI Corp vs. Sandvik AB ADR | IHI Corp vs. Schneider Electric SA | IHI Corp vs. Fanuc | IHI Corp vs. Rockwell Automation |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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