Correlation Between Fortune Brands and Hong Kong

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

Diversification Opportunities for Fortune Brands and Hong Kong

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Correlation Coefficient

Fortune Brands  Hong Kong

Pay attention - limited upside

The 3 months correlation between Fortune and Hong is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Fortune Brands Home and Hong Kong Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hong Kong Land 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 Hong Kong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hong Kong Land has no effect on the direction of Fortune Brands i.e., Fortune Brands and Hong Kong go up and down completely randomly.

Pair Corralation between Fortune Brands and Hong Kong

Assuming the 90 days trading horizon Fortune Brands Home is expected to generate 14.49 times more return on investment than Hong Kong. However, Fortune Brands is 14.49 times more volatile than Hong Kong Land. It trades about 0.06 of its potential returns per unit of risk. Hong Kong Land is currently generating about 0.08 per unit of risk. If you would invest  5,405  in Fortune Brands Home on September 12, 2024 and sell it today you would earn a total of  2,464  from holding Fortune Brands Home or generate 45.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	76.81%
Values	Daily Returns

Fortune Brands Home  vs.  Hong Kong Land

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 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.

Hong Kong Land

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Fortune Brands and Hong Kong

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

The idea behind Fortune Brands Home and Hong Kong Land 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..