Correlation Between Fortune Brands and Whirlpool

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

Diversification Opportunities for Fortune Brands and Whirlpool

-0.52

Correlation Coefficient

Fortune Brands  Whirlpool

Excellent diversification

The 3 months correlation between Fortune and Whirlpool is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Fortune Brands Home and Whirlpool in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Whirlpool 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 Whirlpool. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Whirlpool has no effect on the direction of Fortune Brands i.e., Fortune Brands and Whirlpool go up and down completely randomly.

Pair Corralation between Fortune Brands and Whirlpool

Assuming the 90 days horizon Fortune Brands is expected to generate 64.03 times less return on investment than Whirlpool. But when comparing it to its historical volatility, Fortune Brands Home is 1.48 times less risky than Whirlpool. It trades about 0.0 of its potential returns per unit of risk. Whirlpool is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  8,880  in Whirlpool on September 15, 2024 and sell it today you would earn a total of  2,845  from holding Whirlpool or generate 32.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.48%
Values	Daily Returns

Fortune Brands Home  vs.  Whirlpool

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.

Whirlpool

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Whirlpool are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Whirlpool reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fortune Brands and Whirlpool

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

The idea behind Fortune Brands Home and Whirlpool 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.