Correlation Between Whirlpool and Fortune Brands

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

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

Diversification Opportunities for Whirlpool and Fortune Brands

-0.54

Correlation Coefficient

Whirlpool  Fortune Brands

Excellent diversification

The 3 months correlation between Whirlpool and Fortune is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Whirlpool 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 Whirlpool 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 Whirlpool 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 Whirlpool i.e., Whirlpool and Fortune Brands go up and down completely randomly.

Pair Corralation between Whirlpool and Fortune Brands

Assuming the 90 days horizon Whirlpool is expected to generate 1.49 times more return on investment than Fortune Brands. However, Whirlpool is 1.49 times more volatile than Fortune Brands Home. It trades about 0.19 of its potential returns per unit of risk. Fortune Brands Home is currently generating about 0.0 per unit of risk. If you would invest  8,880  in Whirlpool on September 16, 2024 and sell it today you would earn a total of  2,845  from holding Whirlpool or generate 32.04% return on investment over 90 days.

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

Whirlpool  vs.  Fortune Brands Home

Whirlpool

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Whirlpool are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Whirlpool reported 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. Despite nearly stable basic indicators, Fortune Brands is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Whirlpool and Fortune Brands

The main advantage of trading using opposite Whirlpool and Fortune Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Whirlpool 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 Whirlpool 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.