Correlation Between Fortune Brands and American Tower

Can any of the company-specific risk be diversified away by investing in both Fortune Brands and American Tower 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 American Tower 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 American Tower REIT, you can compare the effects of market volatilities on Fortune Brands and American Tower 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 American Tower. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fortune Brands and American Tower.

Diversification Opportunities for Fortune Brands and American Tower

-0.87

Correlation Coefficient

Fortune Brands  American Tower

Pay attention - limited upside

The 3 months correlation between Fortune and American is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding Fortune Brands Home and American Tower REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Tower REIT 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 American Tower. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Tower REIT has no effect on the direction of Fortune Brands i.e., Fortune Brands and American Tower go up and down completely randomly.

Pair Corralation between Fortune Brands and American Tower

Assuming the 90 days trading horizon Fortune Brands Home is expected to under-perform the American Tower. In addition to that, Fortune Brands is 1.46 times more volatile than American Tower REIT. It trades about -0.08 of its total potential returns per unit of risk. American Tower REIT is currently generating about 0.18 per unit of volatility. If you would invest  18,204  in American Tower REIT on December 25, 2024 and sell it today you would earn a total of  3,112  from holding American Tower REIT or generate 17.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	70.49%
Values	Daily Returns

Fortune Brands Home  vs.  American Tower REIT

Fortune Brands Home

Risk-Adjusted Performance

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 latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

American Tower REIT

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Tower REIT are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, American Tower unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fortune Brands and American Tower

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

The idea behind Fortune Brands Home and American Tower REIT 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.