Correlation Between Fortune Brands and MPH Health

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

Diversification Opportunities for Fortune Brands and MPH Health

0.44

Correlation Coefficient

Fortune Brands  MPH Health

Very weak diversification

The 3 months correlation between Fortune and MPH is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Fortune Brands Home and MPH Health Care in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MPH Health Care 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 MPH Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MPH Health Care has no effect on the direction of Fortune Brands i.e., Fortune Brands and MPH Health go up and down completely randomly.

Pair Corralation between Fortune Brands and MPH Health

Assuming the 90 days trading horizon Fortune Brands Home is expected to under-perform the MPH Health. But the stock apears to be less risky and, when comparing its historical volatility, Fortune Brands Home is 1.56 times less risky than MPH Health. The stock trades about 0.0 of its potential returns per unit of risk. The MPH Health Care is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,548  in MPH Health Care on October 10, 2024 and sell it today you would earn a total of  832.00  from holding MPH Health Care or generate 53.75% return on investment over 90 days.

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

Fortune Brands Home  vs.  MPH Health Care

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 unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

MPH Health Care

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MPH Health Care has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, MPH Health is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Fortune Brands and MPH Health

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

The idea behind Fortune Brands Home and MPH Health Care 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.