Correlation Between BBVA Banco and Fortune Brands

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

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

Diversification Opportunities for BBVA Banco and Fortune Brands

0.81

Correlation Coefficient

BBVA Banco  Fortune Brands

Very poor diversification

The 3 months correlation between BBVA and Fortune is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding BBVA Banco Frances and Fortune Brands Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortune Brands Home and BBVA Banco 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 BBVA Banco Frances 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 Home has no effect on the direction of BBVA Banco i.e., BBVA Banco and Fortune Brands go up and down completely randomly.

Pair Corralation between BBVA Banco and Fortune Brands

Assuming the 90 days horizon BBVA Banco Frances is expected to generate 2.4 times more return on investment than Fortune Brands. However, BBVA Banco is 2.4 times more volatile than Fortune Brands Home. It trades about 0.02 of its potential returns per unit of risk. Fortune Brands Home is currently generating about -0.1 per unit of risk. If you would invest  1,850  in BBVA Banco Frances on December 28, 2024 and sell it today you would lose (20.00) from holding BBVA Banco Frances or give up 1.08% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

BBVA Banco Frances  vs.  Fortune Brands Home

BBVA Banco Frances

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BBVA Banco Frances are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, BBVA Banco is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Fortune Brands Home

Risk-Adjusted Performance

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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with BBVA Banco and Fortune Brands

The main advantage of trading using opposite BBVA Banco and Fortune Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BBVA Banco 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 BBVA Banco Frances and Fortune Brands Home 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.