Correlation Between Middleby Corp and Babcock Wilcox

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

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

Diversification Opportunities for Middleby Corp and Babcock Wilcox

0.17

Correlation Coefficient

Middleby Corp  Babcock Wilcox

Average diversification

The 3 months correlation between Middleby and Babcock is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Middleby Corp and Babcock Wilcox Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Babcock Wilcox Enter 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 Babcock Wilcox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Babcock Wilcox Enter has no effect on the direction of Middleby Corp i.e., Middleby Corp and Babcock Wilcox go up and down completely randomly.

Pair Corralation between Middleby Corp and Babcock Wilcox

Given the investment horizon of 90 days Middleby Corp is expected to under-perform the Babcock Wilcox. But the stock apears to be less risky and, when comparing its historical volatility, Middleby Corp is 3.54 times less risky than Babcock Wilcox. The stock trades about -0.38 of its potential returns per unit of risk. The Babcock Wilcox Enterprises is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  113.00  in Babcock Wilcox Enterprises on January 29, 2024 and sell it today you would lose (9.00) from holding Babcock Wilcox Enterprises or give up 7.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Middleby Corp  vs.  Babcock Wilcox Enterprises

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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

Babcock Wilcox Enter

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Babcock Wilcox Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Middleby Corp and Babcock Wilcox

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

The idea behind Middleby Corp and Babcock Wilcox Enterprises 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.

Check out your portfolio center.

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 Equity Valuation module to check real value of public entities based on technical and fundamental data.