Correlation Between Fortune Brands and Broadcom

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

Diversification Opportunities for Fortune Brands and Broadcom

-0.58

Correlation Coefficient

Fortune Brands  Broadcom

Excellent diversification

The 3 months correlation between Fortune and Broadcom is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Fortune Brands Home and Broadcom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadcom 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 Broadcom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Broadcom has no effect on the direction of Fortune Brands i.e., Fortune Brands and Broadcom go up and down completely randomly.

Pair Corralation between Fortune Brands and Broadcom

Assuming the 90 days trading horizon Fortune Brands is expected to generate 148.75 times less return on investment than Broadcom. But when comparing it to its historical volatility, Fortune Brands Home is 47.11 times less risky than Broadcom. It trades about 0.03 of its potential returns per unit of risk. Broadcom is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  5,683  in Broadcom on October 23, 2024 and sell it today you would earn a total of  18,101  from holding Broadcom or generate 318.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	78.07%
Values	Daily Returns

Fortune Brands Home  vs.  Broadcom

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.

Broadcom

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Broadcom are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Broadcom unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fortune Brands and Broadcom

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

The idea behind Fortune Brands Home and Broadcom 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.