Correlation Between F5 Networks and Illinois Tool

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Can any of the company-specific risk be diversified away by investing in both F5 Networks 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 F5 Networks and Illinois Tool into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between F5 Networks and Illinois Tool Works, you can compare the effects of market volatilities on F5 Networks 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 F5 Networks with a short position of Illinois Tool. Check out your portfolio center. Please also check ongoing floating volatility patterns of F5 Networks and Illinois Tool.

Diversification Opportunities for F5 Networks and Illinois Tool

0.52
  Correlation Coefficient

Very weak diversification

The 3 months correlation between FFIV and Illinois is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding F5 Networks 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 F5 Networks 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 F5 Networks 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 F5 Networks i.e., F5 Networks and Illinois Tool go up and down completely randomly.

Pair Corralation between F5 Networks and Illinois Tool

Given the investment horizon of 90 days F5 Networks is expected to generate 1.23 times less return on investment than Illinois Tool. In addition to that, F5 Networks is 1.76 times more volatile than Illinois Tool Works. It trades about 0.09 of its total potential returns per unit of risk. Illinois Tool Works is currently generating about 0.19 per unit of volatility. If you would invest  26,128  in Illinois Tool Works on December 30, 2023 and sell it today you would earn a total of  705.00  from holding Illinois Tool Works or generate 2.7% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

F5 Networks  vs.  Illinois Tool Works

 Performance 
       Timeline  
F5 Networks 

Risk-Adjusted Performance

9 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in F5 Networks are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain forward indicators, F5 Networks may actually be approaching a critical reversion point that can send shares even higher in April 2024.
Illinois Tool Works 

Risk-Adjusted Performance

5 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Illinois Tool Works are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Illinois Tool is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

F5 Networks and Illinois Tool Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with F5 Networks and Illinois Tool

The main advantage of trading using opposite F5 Networks and Illinois Tool positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if F5 Networks 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 F5 Networks 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.
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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.

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