Correlation Between Travis Perkins and Fortune Brands

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

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

Diversification Opportunities for Travis Perkins and Fortune Brands

0.6

Correlation Coefficient

Travis Perkins  Fortune Brands

Poor diversification

The 3 months correlation between Travis and Fortune is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Travis Perkins PLC 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 Travis Perkins 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 Travis Perkins PLC 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 Travis Perkins i.e., Travis Perkins and Fortune Brands go up and down completely randomly.

Pair Corralation between Travis Perkins and Fortune Brands

Assuming the 90 days horizon Travis Perkins PLC is expected to under-perform the Fortune Brands. In addition to that, Travis Perkins is 1.53 times more volatile than Fortune Brands Innovations. It trades about -0.1 of its total potential returns per unit of risk. Fortune Brands Innovations is currently generating about -0.07 per unit of volatility. If you would invest  6,804  in Fortune Brands Innovations on December 28, 2024 and sell it today you would lose (534.00) from holding Fortune Brands Innovations or give up 7.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Travis Perkins PLC  vs.  Fortune Brands Innovations

Travis Perkins PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Travis Perkins PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's forward-looking signals remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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.

Pair Trading with Travis Perkins and Fortune Brands

The main advantage of trading using opposite Travis Perkins and Fortune Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Travis Perkins 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 Travis Perkins PLC 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.