Correlation Between Lumia and Fortune Brands

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

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

Diversification Opportunities for Lumia and Fortune Brands

-0.54

Correlation Coefficient

Lumia  Fortune Brands

Excellent diversification

The 3 months correlation between Lumia and Fortune is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Lumia and Fortune Brands Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortune Brands Home and Lumia 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 Lumia 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 Home has no effect on the direction of Lumia i.e., Lumia and Fortune Brands go up and down completely randomly.

Pair Corralation between Lumia and Fortune Brands

Assuming the 90 days trading horizon Lumia is expected to generate 156.14 times more return on investment than Fortune Brands. However, Lumia is 156.14 times more volatile than Fortune Brands Home. It trades about 0.21 of its potential returns per unit of risk. Fortune Brands Home is currently generating about -0.5 per unit of risk. If you would invest  0.00  in Lumia on October 9, 2024 and sell it today you would earn a total of  128.00  from holding Lumia or generate 9.223372036854776E16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	80.95%
Values	Daily Returns

Lumia  vs.  Fortune Brands Home

Lumia

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lumia are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Lumia exhibited solid returns over the last few months and may actually be approaching a breakup point.

Fortune Brands Home

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fortune Brands Home 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 fundamental drivers remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Lumia and Fortune Brands

The main advantage of trading using opposite Lumia and Fortune Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lumia 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 Lumia and Fortune Brands Home 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .