Correlation Between Middleby Corp and ITT

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

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

Diversification Opportunities for Middleby Corp and ITT

0.51

Correlation Coefficient

Middleby Corp  ITT

Very weak diversification

The 3 months correlation between Middleby and ITT is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Middleby Corp and ITT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITT Inc 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 ITT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITT Inc has no effect on the direction of Middleby Corp i.e., Middleby Corp and ITT go up and down completely randomly.

Pair Corralation between Middleby Corp and ITT

Given the investment horizon of 90 days Middleby Corp is expected to generate 3.3 times less return on investment than ITT. In addition to that, Middleby Corp is 1.3 times more volatile than ITT Inc. It trades about 0.04 of its total potential returns per unit of risk. ITT Inc is currently generating about 0.18 per unit of volatility. If you would invest  13,248  in ITT Inc on September 1, 2024 and sell it today you would earn a total of  2,364  from holding ITT Inc or generate 17.84% 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.  ITT Inc

Middleby Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Middleby Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Middleby Corp is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

ITT Inc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ITT Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, ITT unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Middleby Corp and ITT

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

The idea behind Middleby Corp and ITT Inc 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.