Correlation Between Fortune Brands and Leggett Platt

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

Diversification Opportunities for Fortune Brands and Leggett Platt

0.65

Correlation Coefficient

Fortune Brands  Leggett Platt

Poor diversification

The 3 months correlation between Fortune and Leggett is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Fortune Brands Home and Leggett Platt Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leggett Platt 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 Leggett Platt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leggett Platt has no effect on the direction of Fortune Brands i.e., Fortune Brands and Leggett Platt go up and down completely randomly.

Pair Corralation between Fortune Brands and Leggett Platt

Assuming the 90 days horizon Fortune Brands Home is expected to generate 0.5 times more return on investment than Leggett Platt. However, Fortune Brands Home is 1.99 times less risky than Leggett Platt. It trades about 0.0 of its potential returns per unit of risk. Leggett Platt Incorporated is currently generating about -0.01 per unit of risk. If you would invest  7,425  in Fortune Brands Home on September 16, 2024 and sell it today you would lose (25.00) from holding Fortune Brands Home or give up 0.34% of portfolio value over 90 days.

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

Fortune Brands Home  vs.  Leggett Platt Incorporated

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Leggett Platt

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Leggett Platt Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Leggett Platt is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Fortune Brands and Leggett Platt

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

The idea behind Fortune Brands Home and Leggett Platt Incorporated 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.