Correlation Between Fortune Brands and Azek

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

Diversification Opportunities for Fortune Brands and Azek

0.73

Correlation Coefficient

Fortune Brands  Azek

Poor diversification

The 3 months correlation between Fortune and Azek is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Fortune Brands Innovations and Azek Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Azek Company 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 Azek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Azek Company has no effect on the direction of Fortune Brands i.e., Fortune Brands and Azek go up and down completely randomly.

Pair Corralation between Fortune Brands and Azek

Given the investment horizon of 90 days Fortune Brands Innovations is expected to under-perform the Azek. But the stock apears to be less risky and, when comparing its historical volatility, Fortune Brands Innovations is 1.23 times less risky than Azek. The stock trades about -0.31 of its potential returns per unit of risk. The Azek Company is currently generating about -0.24 of returns per unit of risk over similar time horizon. If you would invest  5,123  in Azek Company on November 29, 2024 and sell it today you would lose (445.00) from holding Azek Company or give up 8.69% of portfolio value over 90 days.

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

Fortune Brands Innovations  vs.  Azek Company

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 March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Azek Company

Risk-Adjusted Performance

Very Weak

Over the last 90 days Azek Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Fortune Brands and Azek

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

The idea behind Fortune Brands Innovations and Azek Company 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.