Correlation Between Fortune Brands and HomeToGo

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

Diversification Opportunities for Fortune Brands and HomeToGo

-0.12

Correlation Coefficient

Fortune Brands  HomeToGo

Good diversification

The 3 months correlation between Fortune and HomeToGo is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Fortune Brands Home and HomeToGo SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HomeToGo SE 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 HomeToGo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HomeToGo SE has no effect on the direction of Fortune Brands i.e., Fortune Brands and HomeToGo go up and down completely randomly.

Pair Corralation between Fortune Brands and HomeToGo

Assuming the 90 days horizon Fortune Brands Home is expected to generate 0.54 times more return on investment than HomeToGo. However, Fortune Brands Home is 1.86 times less risky than HomeToGo. It trades about 0.16 of its potential returns per unit of risk. HomeToGo SE is currently generating about -0.11 per unit of risk. If you would invest  6,976  in Fortune Brands Home on September 17, 2024 and sell it today you would earn a total of  424.00  from holding Fortune Brands Home or generate 6.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Fortune Brands Home  vs.  HomeToGo SE

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. Despite nearly stable basic indicators, Fortune Brands is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

HomeToGo SE

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HomeToGo SE are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, HomeToGo is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Fortune Brands and HomeToGo

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

The idea behind Fortune Brands Home and HomeToGo SE 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.

Check out your portfolio center.

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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.