Correlation Between Illinois Tool and ABB
Can any of the company-specific risk be diversified away by investing in both Illinois Tool and ABB 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 ABB 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 ABB Ltd ADR, you can compare the effects of market volatilities on Illinois Tool and ABB 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 ABB. Check out your portfolio center. Please also check ongoing floating volatility patterns of Illinois Tool and ABB.
Diversification Opportunities for Illinois Tool and ABB
0.0 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Illinois and ABB is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and ABB Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB Ltd 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 ABB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABB Ltd ADR has no effect on the direction of Illinois Tool i.e., Illinois Tool and ABB go up and down completely randomly.
Pair Corralation between Illinois Tool and ABB
Considering the 90-day investment horizon Illinois Tool is expected to generate 2.36 times less return on investment than ABB. But when comparing it to its historical volatility, Illinois Tool Works is 1.24 times less risky than ABB. It trades about 0.04 of its potential returns per unit of risk. ABB Ltd ADR is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 2,823 in ABB Ltd ADR on January 24, 2024 and sell it today you would earn a total of 1,077 from holding ABB Ltd ADR or generate 38.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 61.41% |
| Values | Daily Returns |
Illinois Tool Works vs. ABB Ltd ADR
Performance |
| Timeline |
| Illinois Tool Works |
| ABB Ltd ADR |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Illinois Tool and ABB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Illinois Tool and ABB
The main advantage of trading using opposite Illinois Tool and ABB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Illinois Tool position performs unexpectedly, ABB 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 ABB will offset losses from the drop in ABB's long position.| Illinois Tool vs. Emerson Electric | Illinois Tool vs. Eaton PLC | Illinois Tool vs. Generac Holdings | Illinois Tool vs. Cummins |
Check out your portfolio center.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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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