Correlation Between Illinois Tool and Otis Worldwide
Can any of the company-specific risk be diversified away by investing in both Illinois Tool and Otis Worldwide 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 Otis Worldwide 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 Otis Worldwide Corp, you can compare the effects of market volatilities on Illinois Tool and Otis Worldwide 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 Otis Worldwide. Check out your portfolio center. Please also check ongoing floating volatility patterns of Illinois Tool and Otis Worldwide.
Diversification Opportunities for Illinois Tool and Otis Worldwide
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Illinois and Otis is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and Otis Worldwide Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Otis Worldwide Corp 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 Otis Worldwide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Otis Worldwide Corp has no effect on the direction of Illinois Tool i.e., Illinois Tool and Otis Worldwide go up and down completely randomly.
Pair Corralation between Illinois Tool and Otis Worldwide
Considering the 90-day investment horizon Illinois Tool Works is expected to generate 1.25 times more return on investment than Otis Worldwide. However, Illinois Tool is 1.25 times more volatile than Otis Worldwide Corp. It trades about 0.24 of its potential returns per unit of risk. Otis Worldwide Corp is currently generating about 0.22 per unit of risk. If you would invest 26,308 in Illinois Tool Works on September 2, 2024 and sell it today you would earn a total of 1,444 from holding Illinois Tool Works or generate 5.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Illinois Tool Works vs. Otis Worldwide Corp
Performance |
| Timeline |
| Illinois Tool Works |
| Otis Worldwide Corp |
Illinois Tool and Otis Worldwide Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Illinois Tool and Otis Worldwide
The main advantage of trading using opposite Illinois Tool and Otis Worldwide positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Illinois Tool position performs unexpectedly, Otis Worldwide 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 Otis Worldwide will offset losses from the drop in Otis Worldwide's long position.| Illinois Tool vs. Pentair PLC | Illinois Tool vs. Parker Hannifin | Illinois Tool vs. Emerson Electric | Illinois Tool vs. Smith AO |
| Otis Worldwide vs. Parker Hannifin | Otis Worldwide vs. Eaton PLC | Otis Worldwide vs. Dover | Otis Worldwide vs. Illinois Tool Works |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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