Correlation Between Fortune Brands and Wyndham Hotels

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

Diversification Opportunities for Fortune Brands and Wyndham Hotels

-0.77

Correlation Coefficient

Fortune Brands  Wyndham Hotels

Pay attention - limited upside

The 3 months correlation between Fortune and Wyndham is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Fortune Brands Home and Wyndham Hotels Resorts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wyndham Hotels Resorts 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 Wyndham Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wyndham Hotels Resorts has no effect on the direction of Fortune Brands i.e., Fortune Brands and Wyndham Hotels go up and down completely randomly.

Pair Corralation between Fortune Brands and Wyndham Hotels

Assuming the 90 days trading horizon Fortune Brands Home is expected to under-perform the Wyndham Hotels. In addition to that, Fortune Brands is 1.69 times more volatile than Wyndham Hotels Resorts. It trades about -0.41 of its total potential returns per unit of risk. Wyndham Hotels Resorts is currently generating about -0.11 per unit of volatility. If you would invest  10,201  in Wyndham Hotels Resorts on October 11, 2024 and sell it today you would lose (243.00) from holding Wyndham Hotels Resorts or give up 2.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	78.95%
Values	Daily Returns

Fortune Brands Home  vs.  Wyndham Hotels Resorts

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 unsteady 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.

Wyndham Hotels Resorts

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wyndham Hotels Resorts are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Wyndham Hotels unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fortune Brands and Wyndham Hotels

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

The idea behind Fortune Brands Home and Wyndham Hotels Resorts 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.