Correlation Between Fortune Brands and Armstrong World

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

By analyzing existing cross correlation between Fortune Brands Innovations and Armstrong World Industries, you can compare the effects of market volatilities on Fortune Brands and Armstrong World 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 Armstrong World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fortune Brands and Armstrong World.

Diversification Opportunities for Fortune Brands and Armstrong World

0.32

Correlation Coefficient

Fortune Brands  Armstrong World

Weak diversification

The 3 months correlation between Fortune and Armstrong is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Fortune Brands Innovations and Armstrong World Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Armstrong World Indu 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 Innovations are associated (or correlated) with Armstrong World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Armstrong World Indu has no effect on the direction of Fortune Brands i.e., Fortune Brands and Armstrong World go up and down completely randomly.

Pair Corralation between Fortune Brands and Armstrong World

Given the investment horizon of 90 days Fortune Brands Innovations is expected to under-perform the Armstrong World. In addition to that, Fortune Brands is 1.02 times more volatile than Armstrong World Industries. It trades about -0.1 of its total potential returns per unit of risk. Armstrong World Industries is currently generating about -0.01 per unit of volatility. If you would invest  14,162  in Armstrong World Industries on December 29, 2024 and sell it today you would lose (207.00) from holding Armstrong World Industries or give up 1.46% of portfolio value over 90 days.

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

Fortune Brands Innovations  vs.  Armstrong World Industries

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.

Armstrong World Indu

Risk-Adjusted Performance

Weak

Over the last 90 days Armstrong World Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Armstrong World is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Fortune Brands and Armstrong World

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

The idea behind Fortune Brands Innovations and Armstrong World Industries 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.