Correlation Between Illinois Tool and Middleby Corp

Can any of the company-specific risk be diversified away by investing in both Illinois Tool and Middleby Corp 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 Middleby Corp 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 Middleby Corp, you can compare the effects of market volatilities on Illinois Tool and Middleby Corp 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 Middleby Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Illinois Tool and Middleby Corp.

Diversification Opportunities for Illinois Tool and Middleby Corp

0.47

Correlation Coefficient

Illinois Tool  Middleby Corp

Very weak diversification

The 3 months correlation between Illinois and Middleby is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and Middleby Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Middleby Corp 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 Middleby Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Middleby Corp has no effect on the direction of Illinois Tool i.e., Illinois Tool and Middleby Corp go up and down completely randomly.

Pair Corralation between Illinois Tool and Middleby Corp

Considering the 90-day investment horizon Illinois Tool Works is expected to generate 0.54 times more return on investment than Middleby Corp. However, Illinois Tool Works is 1.86 times less risky than Middleby Corp. It trades about 0.02 of its potential returns per unit of risk. Middleby Corp is currently generating about -0.01 per unit of risk. If you would invest  25,793  in Illinois Tool Works on September 18, 2024 and sell it today you would earn a total of  1,173  from holding Illinois Tool Works or generate 4.55% 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.  Middleby Corp

Illinois Tool Works

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Illinois Tool Works are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Illinois Tool may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Middleby Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Middleby Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Middleby Corp is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Illinois Tool and Middleby Corp

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

The idea behind Illinois Tool Works and Middleby Corp 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.