Correlation Between Illinois Tool and China Hongqiao

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

Diversification Opportunities for Illinois Tool and China Hongqiao

0.61

Correlation Coefficient

Illinois Tool  China Hongqiao

Poor diversification

The 3 months correlation between Illinois and China is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and China Hongqiao Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Hongqiao Group 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 China Hongqiao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Hongqiao Group has no effect on the direction of Illinois Tool i.e., Illinois Tool and China Hongqiao go up and down completely randomly.

Pair Corralation between Illinois Tool and China Hongqiao

Considering the 90-day investment horizon Illinois Tool is expected to generate 3.56 times less return on investment than China Hongqiao. In addition to that, Illinois Tool is 1.27 times more volatile than China Hongqiao Group. It trades about 0.03 of its total potential returns per unit of risk. China Hongqiao Group is currently generating about 0.13 per unit of volatility. If you would invest  1,250  in China Hongqiao Group on September 22, 2024 and sell it today you would earn a total of  76.00  from holding China Hongqiao Group or generate 6.08% 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.  China Hongqiao Group

Illinois Tool Works

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Illinois Tool Works are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Illinois Tool is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

China Hongqiao Group

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Hongqiao Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, China Hongqiao is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Illinois Tool and China Hongqiao

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

The idea behind Illinois Tool Works and China Hongqiao Group 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.