Correlation Between Illinois Tool and Wartsila Oyj

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

Diversification Opportunities for Illinois Tool and Wartsila Oyj

-0.72

Correlation Coefficient

Illinois Tool  Wartsila Oyj

Pay attention - limited upside

The 3 months correlation between Illinois and Wartsila is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and Wartsila Oyj Abp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wartsila Oyj Abp 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 Wartsila Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wartsila Oyj Abp has no effect on the direction of Illinois Tool i.e., Illinois Tool and Wartsila Oyj go up and down completely randomly.

Pair Corralation between Illinois Tool and Wartsila Oyj

Considering the 90-day investment horizon Illinois Tool Works is expected to generate 0.33 times more return on investment than Wartsila Oyj. However, Illinois Tool Works is 3.03 times less risky than Wartsila Oyj. It trades about 0.15 of its potential returns per unit of risk. Wartsila Oyj Abp is currently generating about -0.08 per unit of risk. If you would invest  25,032  in Illinois Tool Works on September 13, 2024 and sell it today you would earn a total of  2,264  from holding Illinois Tool Works or generate 9.04% return on investment over 90 days.

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

Illinois Tool Works  vs.  Wartsila Oyj Abp

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. In spite of fairly weak basic indicators, Illinois Tool may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Wartsila Oyj Abp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wartsila Oyj Abp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental drivers remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Illinois Tool and Wartsila Oyj

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

The idea behind Illinois Tool Works and Wartsila Oyj Abp 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.