Correlation Between Daikin IndustriesLtd and Fortune Brands

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

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

Diversification Opportunities for Daikin IndustriesLtd and Fortune Brands

0.62

Correlation Coefficient

Daikin IndustriesLtd  Fortune Brands

Poor diversification

The 3 months correlation between Daikin and Fortune is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Daikin IndustriesLtd 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 Daikin IndustriesLtd 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 Daikin IndustriesLtd 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 Daikin IndustriesLtd i.e., Daikin IndustriesLtd and Fortune Brands go up and down completely randomly.

Pair Corralation between Daikin IndustriesLtd and Fortune Brands

Assuming the 90 days horizon Daikin IndustriesLtd is expected to generate 3.24 times more return on investment than Fortune Brands. However, Daikin IndustriesLtd is 3.24 times more volatile than Fortune Brands Innovations. It trades about 0.07 of its potential returns per unit of risk. Fortune Brands Innovations is currently generating about -0.1 per unit of risk. If you would invest  11,041  in Daikin IndustriesLtd on December 11, 2024 and sell it today you would earn a total of  1,056  from holding Daikin IndustriesLtd or generate 9.56% return on investment over 90 days.

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

Daikin IndustriesLtd  vs.  Fortune Brands Innovations

Daikin IndustriesLtd

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Daikin IndustriesLtd are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent essential indicators, Daikin IndustriesLtd 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 uncertain performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Daikin IndustriesLtd and Fortune Brands

The main advantage of trading using opposite Daikin IndustriesLtd and Fortune Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Daikin IndustriesLtd 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 Daikin IndustriesLtd 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.