Correlation Between Fortune Brands and Masco

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

Diversification Opportunities for Fortune Brands and Masco

0.67

Correlation Coefficient

Fortune Brands  Masco

Poor diversification

The 3 months correlation between Fortune and Masco is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Fortune Brands Innovations and Masco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Masco 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 Masco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Masco has no effect on the direction of Fortune Brands i.e., Fortune Brands and Masco go up and down completely randomly.

Pair Corralation between Fortune Brands and Masco

Given the investment horizon of 90 days Fortune Brands Innovations is expected to under-perform the Masco. In addition to that, Fortune Brands is 1.12 times more volatile than Masco. It trades about -0.1 of its total potential returns per unit of risk. Masco is currently generating about -0.05 per unit of volatility. If you would invest  7,223  in Masco on December 28, 2024 and sell it today you would lose (356.00) from holding Masco or give up 4.93% 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.  Masco

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.

Masco

Risk-Adjusted Performance

Very Weak

Over the last 90 days Masco has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Masco is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Fortune Brands and Masco

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

The idea behind Fortune Brands Innovations and Masco 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..