Correlation Between Illinois Tool and Vestas Wind

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

Diversification Opportunities for Illinois Tool and Vestas Wind

-0.83

Correlation Coefficient

Illinois Tool  Vestas Wind

Pay attention - limited upside

The 3 months correlation between Illinois and Vestas is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and Vestas Wind Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vestas Wind Systems 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 Vestas Wind. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vestas Wind Systems has no effect on the direction of Illinois Tool i.e., Illinois Tool and Vestas Wind go up and down completely randomly.

Pair Corralation between Illinois Tool and Vestas Wind

Considering the 90-day investment horizon Illinois Tool Works is expected to generate 0.46 times more return on investment than Vestas Wind. However, Illinois Tool Works is 2.16 times less risky than Vestas Wind. It trades about 0.05 of its potential returns per unit of risk. Vestas Wind Systems is currently generating about -0.04 per unit of risk. If you would invest  21,435  in Illinois Tool Works on September 4, 2024 and sell it today you would earn a total of  6,164  from holding Illinois Tool Works or generate 28.76% return on investment over 90 days.

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

Illinois Tool Works  vs.  Vestas Wind Systems

Illinois Tool Works

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Illinois Tool Works are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Illinois Tool showed solid returns over the last few months and may actually be approaching a breakup point.

Vestas Wind Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vestas Wind Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Illinois Tool and Vestas Wind

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

The idea behind Illinois Tool Works and Vestas Wind Systems 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.