Correlation Between Illinois Tool and ITT
Can any of the company-specific risk be diversified away by investing in both Illinois Tool and ITT 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 ITT 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 ITT Inc, you can compare the effects of market volatilities on Illinois Tool and ITT 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 ITT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Illinois Tool and ITT.
Diversification Opportunities for Illinois Tool and ITT
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Illinois and ITT is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and ITT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITT 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 ITT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITT Inc has no effect on the direction of Illinois Tool i.e., Illinois Tool and ITT go up and down completely randomly.
Pair Corralation between Illinois Tool and ITT
Considering the 90-day investment horizon Illinois Tool is expected to generate 1.68 times less return on investment than ITT. But when comparing it to its historical volatility, Illinois Tool Works is 1.56 times less risky than ITT. It trades about 0.19 of its potential returns per unit of risk. ITT Inc is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 14,483 in ITT Inc on August 31, 2024 and sell it today you would earn a total of 1,077 from holding ITT Inc or generate 7.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Illinois Tool Works vs. ITT Inc
Performance |
| Timeline |
| Illinois Tool Works |
| ITT Inc |
Illinois Tool and ITT Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Illinois Tool and ITT
The main advantage of trading using opposite Illinois Tool and ITT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Illinois Tool position performs unexpectedly, ITT 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 ITT will offset losses from the drop in ITT's long position.| Illinois Tool vs. Pentair PLC | Illinois Tool vs. Parker Hannifin | Illinois Tool vs. Emerson Electric | Illinois Tool vs. Smith AO |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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