Correlation Between Illinois Tool and Xylem
Can any of the company-specific risk be diversified away by investing in both Illinois Tool and Xylem 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 Xylem 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 Xylem Inc, you can compare the effects of market volatilities on Illinois Tool and Xylem 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 Xylem. Check out your portfolio center. Please also check ongoing floating volatility patterns of Illinois Tool and Xylem.
Diversification Opportunities for Illinois Tool and Xylem
-0.52 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Illinois and Xylem is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and Xylem Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xylem 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 Xylem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xylem Inc has no effect on the direction of Illinois Tool i.e., Illinois Tool and Xylem go up and down completely randomly.
Pair Corralation between Illinois Tool and Xylem
Considering the 90-day investment horizon Illinois Tool Works is expected to generate 0.76 times more return on investment than Xylem. However, Illinois Tool Works is 1.32 times less risky than Xylem. It trades about 0.19 of its potential returns per unit of risk. Xylem Inc is currently generating about -0.12 per unit of risk. If you would invest 25,632 in Illinois Tool Works on August 24, 2024 and sell it today you would earn a total of 1,353 from holding Illinois Tool Works or generate 5.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Illinois Tool Works vs. Xylem Inc
Performance |
| Timeline |
| Illinois Tool Works |
| Xylem Inc |
Illinois Tool and Xylem Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Illinois Tool and Xylem
The main advantage of trading using opposite Illinois Tool and Xylem positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Illinois Tool position performs unexpectedly, Xylem 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 Xylem will offset losses from the drop in Xylem'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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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