Correlation Between Fortune Brands and Extra Space

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

Diversification Opportunities for Fortune Brands and Extra Space

-0.12

Correlation Coefficient

Fortune Brands  Extra Space

Good diversification

The 3 months correlation between Fortune and Extra is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Fortune Brands Home and Extra Space Storage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extra Space Storage 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 Extra Space. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extra Space Storage has no effect on the direction of Fortune Brands i.e., Fortune Brands and Extra Space go up and down completely randomly.

Pair Corralation between Fortune Brands and Extra Space

Assuming the 90 days trading horizon Fortune Brands Home is expected to generate 1.3 times more return on investment than Extra Space. However, Fortune Brands is 1.3 times more volatile than Extra Space Storage. It trades about 0.01 of its potential returns per unit of risk. Extra Space Storage is currently generating about -0.01 per unit of risk. If you would invest  7,799  in Fortune Brands Home on September 1, 2024 and sell it today you would earn a total of  31.00  from holding Fortune Brands Home or generate 0.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	83.08%
Values	Daily Returns

Fortune Brands Home  vs.  Extra Space Storage

Fortune Brands Home

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fortune Brands Home are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic 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.

Extra Space Storage

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Fortune Brands and Extra Space

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

The idea behind Fortune Brands Home and Extra Space Storage 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.