Correlation Between Fortune Brands and Color Star

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

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

Diversification Opportunities for Fortune Brands and Color Star

0.21

Correlation Coefficient

Fortune Brands  Color Star

Modest diversification

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

Pair Corralation between Fortune Brands and Color Star

Given the investment horizon of 90 days Fortune Brands Innovations is expected to generate 0.27 times more return on investment than Color Star. However, Fortune Brands Innovations is 3.77 times less risky than Color Star. It trades about 0.05 of its potential returns per unit of risk. Color Star Technology is currently generating about -0.04 per unit of risk. If you would invest  5,237  in Fortune Brands Innovations on February 16, 2024 and sell it today you would earn a total of  2,283  from holding Fortune Brands Innovations or generate 43.59% return on investment over 90 days.

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

Fortune Brands Innovations  vs.  Color Star Technology

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.

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.

Pair Trading with Fortune Brands and Color Star

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

The idea behind Fortune Brands Innovations and Color Star Technology 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 Stocks Directory module to find actively traded stocks across global markets.