Correlation Between Future Metals and Fortune Brands
Can any of the company-specific risk be diversified away by investing in both Future Metals 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 Future Metals and Fortune Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Future Metals NL and Fortune Brands Home, you can compare the effects of market volatilities on Future Metals 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 Future Metals with a short position of Fortune Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Future Metals and Fortune Brands.
Diversification Opportunities for Future Metals and Fortune Brands
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Future and Fortune is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Future Metals NL 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 Future Metals 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 Future Metals NL 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 Future Metals i.e., Future Metals and Fortune Brands go up and down completely randomly.
Pair Corralation between Future Metals and Fortune Brands
Assuming the 90 days trading horizon Future Metals NL is expected to generate 1.54 times more return on investment than Fortune Brands. However, Future Metals is 1.54 times more volatile than Fortune Brands Home. It trades about 0.06 of its potential returns per unit of risk. Fortune Brands Home is currently generating about 0.01 per unit of risk. If you would invest 88.00 in Future Metals NL on September 3, 2024 and sell it today you would earn a total of 7.00 from holding Future Metals NL or generate 7.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 84.62% |
| Values | Daily Returns |
Future Metals NL vs. Fortune Brands Home
Performance |
| Timeline |
| Future Metals NL |
| Fortune Brands Home |
Future Metals and Fortune Brands Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Future Metals and Fortune Brands
The main advantage of trading using opposite Future Metals and Fortune Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Future Metals 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.| Future Metals vs. Monster Beverage Corp | Future Metals vs. Hilton Food Group | Future Metals vs. Edita Food Industries | Future Metals vs. Sligro Food Group |
| Fortune Brands vs. GreenX Metals | Fortune Brands vs. Gaztransport et Technigaz | Fortune Brands vs. Batm Advanced Communications | Fortune Brands vs. Future Metals NL |
Check out your portfolio center.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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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