Correlation Between Illinois Tool and Nidec

Can any of the company-specific risk be diversified away by investing in both Illinois Tool and Nidec 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 Nidec 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 Nidec, you can compare the effects of market volatilities on Illinois Tool and Nidec 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 Nidec. Check out your portfolio center. Please also check ongoing floating volatility patterns of Illinois Tool and Nidec.

Diversification Opportunities for Illinois Tool and Nidec

-0.34

Correlation Coefficient

Illinois Tool  Nidec

Very good diversification

The 3 months correlation between Illinois and Nidec is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and Nidec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nidec 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 Nidec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nidec has no effect on the direction of Illinois Tool i.e., Illinois Tool and Nidec go up and down completely randomly.

Pair Corralation between Illinois Tool and Nidec

Assuming the 90 days horizon Illinois Tool is expected to generate 4.38 times less return on investment than Nidec. But when comparing it to its historical volatility, Illinois Tool Works is 14.64 times less risky than Nidec. It trades about 0.15 of its potential returns per unit of risk. Nidec is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  442.00  in Nidec on September 23, 2024 and sell it today you would lose (46.00) from holding Nidec or give up 10.41% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Illinois Tool Works  vs.  Nidec

Illinois Tool Works

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Illinois Tool Works are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Illinois Tool may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Nidec

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nidec are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental drivers, Nidec reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Illinois Tool and Nidec

The main advantage of trading using opposite Illinois Tool and Nidec positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Illinois Tool position performs unexpectedly, Nidec 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 Nidec will offset losses from the drop in Nidec's long position.

The idea behind Illinois Tool Works and Nidec 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.

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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 Anywhere module to track or share privately all of your investments from the convenience of any device.