Correlation Between Illinois Tool and Barnes

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

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

Diversification Opportunities for Illinois Tool and Barnes

0.44

Correlation Coefficient

Illinois Tool  Barnes

Very weak diversification

The 3 months correlation between Illinois and Barnes is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and Barnes Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barnes Group and Illinois Tool 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 Illinois Tool Works are associated (or correlated) with Barnes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barnes Group has no effect on the direction of Illinois Tool i.e., Illinois Tool and Barnes go up and down completely randomly.

Pair Corralation between Illinois Tool and Barnes

Considering the 90-day investment horizon Illinois Tool is expected to generate 1.11 times less return on investment than Barnes. But when comparing it to its historical volatility, Illinois Tool Works is 1.78 times less risky than Barnes. It trades about 0.04 of its potential returns per unit of risk. Barnes Group is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  3,233  in Barnes Group on February 4, 2024 and sell it today you would earn a total of  421.00  from holding Barnes Group or generate 13.02% return on investment over 90 days.

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

Illinois Tool Works  vs.  Barnes Group

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 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.

Barnes Group

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Barnes Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent fundamental drivers, Barnes may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Illinois Tool and Barnes

The main advantage of trading using opposite Illinois Tool and Barnes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Illinois Tool position performs unexpectedly, Barnes 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 Barnes will offset losses from the drop in Barnes' long position.

The idea behind Illinois Tool Works and Barnes Group 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.