Correlation Between Vestas Wind and Illinois Tool

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

Diversification Opportunities for Vestas Wind and Illinois Tool

0.18
  Correlation Coefficient

Average diversification

The 3 months correlation between Vestas and Illinois is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Vestas Wind Systems 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 Vestas Wind 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 Vestas Wind Systems 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 Vestas Wind i.e., Vestas Wind and Illinois Tool go up and down completely randomly.

Pair Corralation between Vestas Wind and Illinois Tool

Assuming the 90 days horizon Vestas Wind Systems is expected to generate 2.22 times more return on investment than Illinois Tool. However, Vestas Wind is 2.22 times more volatile than Illinois Tool Works. It trades about 0.14 of its potential returns per unit of risk. Illinois Tool Works is currently generating about 0.17 per unit of risk. If you would invest  2,668  in Vestas Wind Systems on December 29, 2023 and sell it today you would earn a total of  122.00  from holding Vestas Wind Systems or generate 4.57% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Vestas Wind Systems  vs.  Illinois Tool Works

 Performance 
       Timeline  
Vestas Wind Systems 

Risk-Adjusted Performance

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High
Very Weak
Over the last 90 days Vestas Wind Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.
Illinois Tool Works 

Risk-Adjusted Performance

3 of 100

 
Low
 
High
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Illinois Tool Works are ranked lower than 3 (%) 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 latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Vestas Wind and Illinois Tool Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Vestas Wind and Illinois Tool

The main advantage of trading using opposite Vestas Wind and Illinois Tool positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vestas Wind 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 Vestas Wind Systems 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 Stocks Directory module to find actively traded stocks across global markets.

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