Correlation Between Illinois Tool and SMC Corp

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

Diversification Opportunities for Illinois Tool and SMC Corp

-0.02

Correlation Coefficient

Illinois Tool  SMC Corp

Good diversification

The 3 months correlation between Illinois and SMC is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and SMC Corp Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMC Corp Japan 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 SMC Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMC Corp Japan has no effect on the direction of Illinois Tool i.e., Illinois Tool and SMC Corp go up and down completely randomly.

Pair Corralation between Illinois Tool and SMC Corp

Considering the 90-day investment horizon Illinois Tool Works is expected to generate 0.53 times more return on investment than SMC Corp. However, Illinois Tool Works is 1.88 times less risky than SMC Corp. It trades about 0.01 of its potential returns per unit of risk. SMC Corp Japan is currently generating about -0.06 per unit of risk. 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 Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Illinois Tool Works  vs.  SMC Corp Japan

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.

SMC Corp Japan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SMC Corp Japan has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Illinois Tool and SMC Corp

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

The idea behind Illinois Tool Works and SMC Corp Japan 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.