Correlation Between Fortune Brands and Veolia Environnement

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

Diversification Opportunities for Fortune Brands and Veolia Environnement

0.88

Correlation Coefficient

Fortune Brands  Veolia Environnement

Very poor diversification

The 3 months correlation between Fortune and Veolia is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Fortune Brands Home and Veolia Environnement VE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Veolia Environnement 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 Veolia Environnement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Veolia Environnement has no effect on the direction of Fortune Brands i.e., Fortune Brands and Veolia Environnement go up and down completely randomly.

Pair Corralation between Fortune Brands and Veolia Environnement

Assuming the 90 days trading horizon Fortune Brands Home is expected to generate 1.97 times more return on investment than Veolia Environnement. However, Fortune Brands is 1.97 times more volatile than Veolia Environnement VE. It trades about 0.03 of its potential returns per unit of risk. Veolia Environnement VE is currently generating about 0.02 per unit of risk. If you would invest  6,566  in Fortune Brands Home on October 24, 2024 and sell it today you would earn a total of  863.00  from holding Fortune Brands Home or generate 13.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	77.87%
Values	Daily Returns

Fortune Brands Home  vs.  Veolia Environnement VE

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 uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Veolia Environnement

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Veolia Environnement VE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Veolia Environnement 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 Veolia Environnement

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

The idea behind Fortune Brands Home and Veolia Environnement VE 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.