Correlation Between Universal Display and Fortune Brands

Can any of the company-specific risk be diversified away by investing in both Universal Display and Fortune Brands 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 Universal Display and Fortune Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Universal Display Corp and Fortune Brands Home, you can compare the effects of market volatilities on Universal Display and Fortune Brands 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 Universal Display with a short position of Fortune Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal Display and Fortune Brands.

Diversification Opportunities for Universal Display and Fortune Brands

-0.11

Correlation Coefficient

Universal Display  Fortune Brands

Good diversification

The 3 months correlation between Universal and Fortune is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Universal Display Corp and Fortune Brands Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortune Brands Home and Universal Display 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 Universal Display Corp are associated (or correlated) with Fortune Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortune Brands Home has no effect on the direction of Universal Display i.e., Universal Display and Fortune Brands go up and down completely randomly.

Pair Corralation between Universal Display and Fortune Brands

Assuming the 90 days trading horizon Universal Display Corp is expected to generate 1.03 times more return on investment than Fortune Brands. However, Universal Display is 1.03 times more volatile than Fortune Brands Home. It trades about 0.02 of its potential returns per unit of risk. Fortune Brands Home is currently generating about -0.08 per unit of risk. If you would invest  14,734  in Universal Display Corp on December 25, 2024 and sell it today you would earn a total of  251.00  from holding Universal Display Corp or generate 1.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	74.14%
Values	Daily Returns

Universal Display Corp  vs.  Fortune Brands Home

Universal Display Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Display Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Universal Display is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Fortune Brands Home

Risk-Adjusted Performance

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.

Pair Trading with Universal Display and Fortune Brands

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

The idea behind Universal Display Corp and Fortune Brands Home 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.