Correlation Between Illinois Tool and Siemens AG

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

Diversification Opportunities for Illinois Tool and Siemens AG

0.05

Correlation Coefficient

Illinois Tool  Siemens AG

Significant diversification

The 3 months correlation between Illinois and Siemens is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and Siemens AG ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Siemens AG ADR 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 Siemens AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Siemens AG ADR has no effect on the direction of Illinois Tool i.e., Illinois Tool and Siemens AG go up and down completely randomly.

Pair Corralation between Illinois Tool and Siemens AG

If you would invest  25,705  in Illinois Tool Works on September 24, 2024 and sell it today you would earn a total of  59.00  from holding Illinois Tool Works or generate 0.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	1.54%
Values	Daily Returns

Illinois Tool Works  vs.  Siemens AG ADR

Illinois Tool Works

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Illinois Tool Works has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Siemens AG ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Siemens AG ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Siemens AG is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Illinois Tool and Siemens AG

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

The idea behind Illinois Tool Works and Siemens AG ADR 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.