Correlation Between Fortune Brands and Applied UV

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

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

Diversification Opportunities for Fortune Brands and Applied UV

-0.14

Correlation Coefficient

Fortune Brands  Applied UV

Good diversification

The 3 months correlation between Fortune and Applied is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Fortune Brands Home and Applied UV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied UV and Fortune Brands 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 Fortune Brands Home are associated (or correlated) with Applied UV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied UV has no effect on the direction of Fortune Brands i.e., Fortune Brands and Applied UV go up and down completely randomly.

Pair Corralation between Fortune Brands and Applied UV

Given the investment horizon of 90 days Fortune Brands Home is expected to generate 0.84 times more return on investment than Applied UV. However, Fortune Brands Home is 1.2 times less risky than Applied UV. It trades about -0.07 of its potential returns per unit of risk. Applied UV is currently generating about -0.07 per unit of risk. If you would invest  7,001  in Fortune Brands Home on January 26, 2024 and sell it today you would lose (7,001) from holding Fortune Brands Home or give up 100.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	35.15%
Values	Daily Returns

Fortune Brands Home  vs.  Applied UV

Fortune Brands Home

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fortune Brands Home has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical indicators, Fortune Brands is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Applied UV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Applied UV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Fortune Brands and Applied UV

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

The idea behind Fortune Brands Home and Applied UV 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.