Correlation Between Azek and Fortune Brands

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

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

Diversification Opportunities for Azek and Fortune Brands

0.74

Correlation Coefficient

Azek  Fortune Brands

Poor diversification

The 3 months correlation between Azek and Fortune is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Azek Company and Fortune Brands Innovations in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortune Brands Innov and Azek 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 Azek Company 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 Innov has no effect on the direction of Azek i.e., Azek and Fortune Brands go up and down completely randomly.

Pair Corralation between Azek and Fortune Brands

Given the investment horizon of 90 days Azek Company is expected to generate 1.9 times more return on investment than Fortune Brands. However, Azek is 1.9 times more volatile than Fortune Brands Innovations. It trades about 0.03 of its potential returns per unit of risk. Fortune Brands Innovations is currently generating about -0.07 per unit of risk. If you would invest  4,797  in Azek Company on December 28, 2024 and sell it today you would earn a total of  182.00  from holding Azek Company or generate 3.79% return on investment over 90 days.

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

Azek Company  vs.  Fortune Brands Innovations

Azek Company

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Azek Company are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Azek may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Fortune Brands Innov

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fortune Brands Innovations has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's forward indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Azek and Fortune Brands

The main advantage of trading using opposite Azek and Fortune Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Azek 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 Azek Company and Fortune Brands Innovations 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.