Correlation Between Advanced Drainage and Fortune Brands

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

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

Diversification Opportunities for Advanced Drainage and Fortune Brands

0.94

Correlation Coefficient

Advanced Drainage  Fortune Brands

Almost no diversification

The 3 months correlation between Advanced and Fortune is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Drainage Systems 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 Advanced Drainage 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 Advanced Drainage Systems 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 Advanced Drainage i.e., Advanced Drainage and Fortune Brands go up and down completely randomly.

Pair Corralation between Advanced Drainage and Fortune Brands

Considering the 90-day investment horizon Advanced Drainage Systems is expected to under-perform the Fortune Brands. In addition to that, Advanced Drainage is 1.09 times more volatile than Fortune Brands Innovations. It trades about -0.34 of its total potential returns per unit of risk. Fortune Brands Innovations is currently generating about -0.35 per unit of volatility. If you would invest  7,800  in Fortune Brands Innovations on September 27, 2024 and sell it today you would lose (816.00) from holding Fortune Brands Innovations or give up 10.46% of portfolio value over 90 days.

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

Advanced Drainage Systems  vs.  Fortune Brands Innovations

Advanced Drainage Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Advanced Drainage Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's primary indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private 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 uncertain 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 Advanced Drainage and Fortune Brands

The main advantage of trading using opposite Advanced Drainage and Fortune Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advanced Drainage 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 Advanced Drainage Systems 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.