Correlation Between Leggett Platt and Illinois Tool
Can any of the company-specific risk be diversified away by investing in both Leggett Platt and Illinois Tool 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 Leggett Platt and Illinois Tool into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Leggett Platt Incorporated and Illinois Tool Works, you can compare the effects of market volatilities on Leggett Platt and Illinois Tool 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 Leggett Platt with a short position of Illinois Tool. Check out your portfolio center. Please also check ongoing floating volatility patterns of Leggett Platt and Illinois Tool.
Diversification Opportunities for Leggett Platt and Illinois Tool
0.01 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Leggett and Illinois is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Leggett Platt Incorporated and Illinois Tool Works in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Illinois Tool Works and Leggett Platt 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 Leggett Platt Incorporated are associated (or correlated) with Illinois Tool. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Illinois Tool Works has no effect on the direction of Leggett Platt i.e., Leggett Platt and Illinois Tool go up and down completely randomly.
Pair Corralation between Leggett Platt and Illinois Tool
Considering the 90-day investment horizon Leggett Platt Incorporated is expected to under-perform the Illinois Tool. In addition to that, Leggett Platt is 2.09 times more volatile than Illinois Tool Works. It trades about -0.07 of its total potential returns per unit of risk. Illinois Tool Works is currently generating about 0.05 per unit of volatility. If you would invest 21,432 in Illinois Tool Works on August 24, 2024 and sell it today you would earn a total of 5,963 from holding Illinois Tool Works or generate 27.82% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Leggett Platt Incorporated vs. Illinois Tool Works
Performance |
| Timeline |
| Leggett Platt |
| Illinois Tool Works |
Leggett Platt and Illinois Tool Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Leggett Platt and Illinois Tool
The main advantage of trading using opposite Leggett Platt and Illinois Tool positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Leggett Platt position performs unexpectedly, Illinois Tool 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 Illinois Tool will offset losses from the drop in Illinois Tool's long position.The idea behind Leggett Platt Incorporated and Illinois Tool Works pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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