Correlation Between Color Star and Fortune Brands

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

By analyzing existing cross correlation between Color Star Technology and Fortune Brands Innovations, you can compare the effects of market volatilities on Color Star and Fortune Brands 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 Color Star with a short position of Fortune Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Color Star and Fortune Brands.

Diversification Opportunities for Color Star and Fortune Brands

0.21

Correlation Coefficient

Color Star  Fortune Brands

Modest diversification

The 3 months correlation between Color and Fortune is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Color Star Technology and Fortune Brands Innovations in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortune Brands Innov and Color Star 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 Color Star Technology are associated (or correlated) with Fortune Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortune Brands Innov has no effect on the direction of Color Star i.e., Color Star and Fortune Brands go up and down completely randomly.

Pair Corralation between Color Star and Fortune Brands

Considering the 90-day investment horizon Color Star Technology is expected to under-perform the Fortune Brands. In addition to that, Color Star is 3.06 times more volatile than Fortune Brands Innovations. It trades about -0.02 of its total potential returns per unit of risk. Fortune Brands Innovations is currently generating about 0.0 per unit of volatility. If you would invest  7,540  in Fortune Brands Innovations on February 16, 2024 and sell it today you would lose (20.00) from holding Fortune Brands Innovations or give up 0.27% of portfolio value over 90 days.

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

Color Star Technology  vs.  Fortune Brands Innovations

Color Star Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Color Star Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in June 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Fortune Brands Innov

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fortune Brands Innovations has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Fortune Brands is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Color Star and Fortune Brands

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

The idea behind Color Star Technology and Fortune Brands Innovations 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.