Correlation Between Vulcan Materials and Brown Forman

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

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

Diversification Opportunities for Vulcan Materials and Brown Forman

-0.57

Correlation Coefficient

Vulcan Materials  Brown Forman

Excellent diversification

The 3 months correlation between Vulcan and Brown is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Vulcan Materials and Brown Forman in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brown Forman and Vulcan Materials 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 Vulcan Materials are associated (or correlated) with Brown Forman. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brown Forman has no effect on the direction of Vulcan Materials i.e., Vulcan Materials and Brown Forman go up and down completely randomly.

Pair Corralation between Vulcan Materials and Brown Forman

Assuming the 90 days horizon Vulcan Materials is expected to generate 1.04 times more return on investment than Brown Forman. However, Vulcan Materials is 1.04 times more volatile than Brown Forman. It trades about 0.06 of its potential returns per unit of risk. Brown Forman is currently generating about -0.06 per unit of risk. If you would invest  16,108  in Vulcan Materials on October 10, 2024 and sell it today you would earn a total of  8,692  from holding Vulcan Materials or generate 53.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Vulcan Materials  vs.  Brown Forman

Vulcan Materials

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Materials are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Vulcan Materials reported solid returns over the last few months and may actually be approaching a breakup point.

Brown Forman

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brown Forman has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Vulcan Materials and Brown Forman

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

The idea behind Vulcan Materials and Brown Forman 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.