Correlation Between Lixil Group and Fortune Brands

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

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

Diversification Opportunities for Lixil Group and Fortune Brands

0.27

Correlation Coefficient

Lixil Group  Fortune Brands

Modest diversification

The 3 months correlation between Lixil and Fortune is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Lixil Group Corp 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 Lixil Group 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 Lixil Group Corp 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 Lixil Group i.e., Lixil Group and Fortune Brands go up and down completely randomly.

Pair Corralation between Lixil Group and Fortune Brands

Assuming the 90 days horizon Lixil Group Corp is expected to under-perform the Fortune Brands. But the pink sheet apears to be less risky and, when comparing its historical volatility, Lixil Group Corp is 2.63 times less risky than Fortune Brands. The pink sheet trades about -0.24 of its potential returns per unit of risk. The Fortune Brands Innovations is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  7,331  in Fortune Brands Innovations on September 20, 2024 and sell it today you would lose (329.00) from holding Fortune Brands Innovations or give up 4.49% of portfolio value over 90 days.

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

Lixil Group Corp  vs.  Fortune Brands Innovations

Lixil Group Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lixil Group Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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 weak performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Lixil Group and Fortune Brands

The main advantage of trading using opposite Lixil Group and Fortune Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lixil Group 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 Lixil Group Corp 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.