Correlation Between Fortune Brands and Lennox International

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

Diversification Opportunities for Fortune Brands and Lennox International

-0.03

Correlation Coefficient

Fortune Brands  Lennox International

Good diversification

The 3 months correlation between Fortune and Lennox is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Fortune Brands Innovations and Lennox International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lennox International 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 Lennox International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lennox International has no effect on the direction of Fortune Brands i.e., Fortune Brands and Lennox International go up and down completely randomly.

Pair Corralation between Fortune Brands and Lennox International

Given the investment horizon of 90 days Fortune Brands Innovations is expected to under-perform the Lennox International. In addition to that, Fortune Brands is 1.09 times more volatile than Lennox International. It trades about 0.0 of its total potential returns per unit of risk. Lennox International is currently generating about 0.12 per unit of volatility. If you would invest  58,907  in Lennox International on August 30, 2024 and sell it today you would earn a total of  7,097  from holding Lennox International or generate 12.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Fortune Brands Innovations  vs.  Lennox International

Fortune Brands Innov

Risk-Adjusted Performance

0 of 100

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 very healthy forward indicators, Fortune Brands is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Lennox International

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lennox International are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward indicators, Lennox International may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Fortune Brands and Lennox International

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

The idea behind Fortune Brands Innovations and Lennox International 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.

Check out your portfolio center.

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 Equity Valuation module to check real value of public entities based on technical and fundamental data.