Correlation Between Franklin Electric and Illinois Tool

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

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

Diversification Opportunities for Franklin Electric and Illinois Tool

0.81

Correlation Coefficient

Franklin Electric  Illinois Tool

Very poor diversification

The 3 months correlation between Franklin and Illinois is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Electric Co 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 Franklin Electric 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 Franklin Electric Co 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 Franklin Electric i.e., Franklin Electric and Illinois Tool go up and down completely randomly.

Pair Corralation between Franklin Electric and Illinois Tool

Given the investment horizon of 90 days Franklin Electric Co is expected to generate 1.2 times more return on investment than Illinois Tool. However, Franklin Electric is 1.2 times more volatile than Illinois Tool Works. It trades about 0.05 of its potential returns per unit of risk. Illinois Tool Works is currently generating about 0.05 per unit of risk. If you would invest  7,010  in Franklin Electric Co on March 6, 2024 and sell it today you would earn a total of  2,742  from holding Franklin Electric Co or generate 39.12% return on investment over 90 days.

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

Franklin Electric Co  vs.  Illinois Tool Works

Franklin Electric

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin Electric Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Franklin Electric is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Illinois Tool Works

Risk-Adjusted Performance

0 of 100

Very 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 latest weak performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Franklin Electric and Illinois Tool

The main advantage of trading using opposite Franklin Electric and Illinois Tool positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Electric 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 Franklin Electric Co 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.