Correlation Between Rockwell Automation and Illinois Tool

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

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

Diversification Opportunities for Rockwell Automation and Illinois Tool

0.82

Correlation Coefficient

Rockwell Automation  Illinois Tool

Very poor diversification

The 3 months correlation between Rockwell and Illinois is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Rockwell Automation 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 Rockwell Automation 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 Rockwell Automation 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 Rockwell Automation i.e., Rockwell Automation and Illinois Tool go up and down completely randomly.

Pair Corralation between Rockwell Automation and Illinois Tool

Considering the 90-day investment horizon Rockwell Automation is expected to generate 1.14 times less return on investment than Illinois Tool. In addition to that, Rockwell Automation is 1.66 times more volatile than Illinois Tool Works. It trades about 0.03 of its total potential returns per unit of risk. Illinois Tool Works is currently generating about 0.05 per unit of volatility. If you would invest  21,184  in Illinois Tool Works on August 27, 2024 and sell it today you would earn a total of  6,211  from holding Illinois Tool Works or generate 29.32% return on investment over 90 days.

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

Rockwell Automation  vs.  Illinois Tool Works

Rockwell Automation

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rockwell Automation are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal basic indicators, Rockwell Automation may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Illinois Tool Works

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Illinois Tool Works are ranked lower than 12 (%) 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 December 2024.

Pair Trading with Rockwell Automation and Illinois Tool

The main advantage of trading using opposite Rockwell Automation and Illinois Tool positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rockwell Automation 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 Rockwell Automation 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 Transaction History module to view history of all your transactions and understand their impact on performance.