Correlation Between Middleby Corp and Donaldson

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

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

Diversification Opportunities for Middleby Corp and Donaldson

0.57

Correlation Coefficient

Middleby Corp  Donaldson

Very weak diversification

The 3 months correlation between Middleby and Donaldson is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Middleby Corp and Donaldson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Donaldson and Middleby Corp 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 Middleby Corp are associated (or correlated) with Donaldson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Donaldson has no effect on the direction of Middleby Corp i.e., Middleby Corp and Donaldson go up and down completely randomly.

Pair Corralation between Middleby Corp and Donaldson

Given the investment horizon of 90 days Middleby Corp is expected to generate 2.03 times more return on investment than Donaldson. However, Middleby Corp is 2.03 times more volatile than Donaldson. It trades about 0.09 of its potential returns per unit of risk. Donaldson is currently generating about 0.01 per unit of risk. If you would invest  13,559  in Middleby Corp on December 30, 2024 and sell it today you would earn a total of  1,717  from holding Middleby Corp or generate 12.66% return on investment over 90 days.

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

Middleby Corp  vs.  Donaldson

Middleby Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Middleby Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, Middleby Corp exhibited solid returns over the last few months and may actually be approaching a breakup point.

Donaldson

Risk-Adjusted Performance

Very Weak

Over the last 90 days Donaldson has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Donaldson is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Middleby Corp and Donaldson

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

The idea behind Middleby Corp and Donaldson 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.