Correlation Between Eaton PLC and Illinois Tool

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

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

Diversification Opportunities for Eaton PLC and Illinois Tool

0.87

Correlation Coefficient

Eaton PLC  Illinois Tool

Very poor diversification

The 3 months correlation between Eaton and Illinois is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC 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 Eaton PLC 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 Eaton PLC 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 Eaton PLC i.e., Eaton PLC and Illinois Tool go up and down completely randomly.

Pair Corralation between Eaton PLC and Illinois Tool

Considering the 90-day investment horizon Eaton PLC is expected to generate 1.31 times more return on investment than Illinois Tool. However, Eaton PLC is 1.31 times more volatile than Illinois Tool Works. It trades about 0.27 of its potential returns per unit of risk. Illinois Tool Works is currently generating about 0.09 per unit of risk. If you would invest  30,220  in Eaton PLC on May 7, 2025 and sell it today you would earn a total of  8,256  from holding Eaton PLC or generate 27.32% return on investment over 90 days.

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

Eaton PLC  vs.  Illinois Tool Works

Eaton PLC

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eaton PLC are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Eaton PLC displayed solid returns over the last few months and may actually be approaching a breakup point.

Illinois Tool Works

Risk-Adjusted Performance

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. In spite of fairly weak basic indicators, Illinois Tool may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Eaton PLC and Illinois Tool

The main advantage of trading using opposite Eaton PLC and Illinois Tool positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eaton PLC 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 Eaton PLC 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.