Correlation Between Ramsay Health and Illinois Tool

Can any of the company-specific risk be diversified away by investing in both Ramsay Health and Illinois Tool 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 Ramsay Health and Illinois Tool into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ramsay Health Care and Illinois Tool Works, you can compare the effects of market volatilities on Ramsay Health and Illinois Tool 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 Ramsay Health with a short position of Illinois Tool. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ramsay Health and Illinois Tool.

Diversification Opportunities for Ramsay Health and Illinois Tool

-0.61

Correlation Coefficient

Ramsay Health  Illinois Tool

Excellent diversification

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

Pair Corralation between Ramsay Health and Illinois Tool

Assuming the 90 days horizon Ramsay Health Care is expected to under-perform the Illinois Tool. In addition to that, Ramsay Health is 1.81 times more volatile than Illinois Tool Works. It trades about -0.49 of its total potential returns per unit of risk. Illinois Tool Works is currently generating about -0.39 per unit of volatility. If you would invest  26,330  in Illinois Tool Works on September 27, 2024 and sell it today you would lose (1,700) from holding Illinois Tool Works or give up 6.46% of portfolio value over 90 days.

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

Ramsay Health Care  vs.  Illinois Tool Works

Ramsay Health Care

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ramsay Health Care 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.

Illinois Tool Works

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Illinois Tool Works are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Illinois Tool is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Ramsay Health and Illinois Tool

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

The idea behind Ramsay Health Care and Illinois Tool Works 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.