Correlation Between Fortune Brands and Unite Group

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

Diversification Opportunities for Fortune Brands and Unite Group

0.46

Correlation Coefficient

Fortune Brands  Unite Group

Very weak diversification

The 3 months correlation between Fortune and Unite is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Fortune Brands Home and Unite Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unite Group PLC 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 Unite Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unite Group PLC has no effect on the direction of Fortune Brands i.e., Fortune Brands and Unite Group go up and down completely randomly.

Pair Corralation between Fortune Brands and Unite Group

Assuming the 90 days trading horizon Fortune Brands Home is expected to generate 1.77 times more return on investment than Unite Group. However, Fortune Brands is 1.77 times more volatile than Unite Group PLC. It trades about 0.01 of its potential returns per unit of risk. Unite Group PLC is currently generating about -0.08 per unit of risk. If you would invest  7,649  in Fortune Brands Home on September 18, 2024 and sell it today you would lose (83.00) from holding Fortune Brands Home or give up 1.09% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	85.54%
Values	Daily Returns

Fortune Brands Home  vs.  Unite Group PLC

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 latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Unite Group PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Unite Group PLC 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 technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Fortune Brands and Unite Group

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

The idea behind Fortune Brands Home and Unite Group PLC 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.