Correlation Between International Biotechnology and Fortune Brands
Can any of the company-specific risk be diversified away by investing in both International Biotechnology 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 International Biotechnology and Fortune Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Biotechnology Trust and Fortune Brands Home, you can compare the effects of market volatilities on International Biotechnology 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 International Biotechnology with a short position of Fortune Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Biotechnology and Fortune Brands.
Diversification Opportunities for International Biotechnology and Fortune Brands
-0.16 | Correlation Coefficient |
Good diversification
The 3 months correlation between International and Fortune is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding International Biotechnology Tr 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 International Biotechnology 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 International Biotechnology Trust 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 International Biotechnology i.e., International Biotechnology and Fortune Brands go up and down completely randomly.
Pair Corralation between International Biotechnology and Fortune Brands
Assuming the 90 days trading horizon International Biotechnology Trust is expected to generate 0.76 times more return on investment than Fortune Brands. However, International Biotechnology Trust is 1.32 times less risky than Fortune Brands. It trades about 0.03 of its potential returns per unit of risk. Fortune Brands Home is currently generating about -0.15 per unit of risk. If you would invest 68,800 in International Biotechnology Trust on August 28, 2024 and sell it today you would earn a total of 600.00 from holding International Biotechnology Trust or generate 0.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Biotechnology Tr vs. Fortune Brands Home
Performance |
| Timeline |
| International Biotechnology |
| Fortune Brands Home |
International Biotechnology and Fortune Brands Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Biotechnology and Fortune Brands
The main advantage of trading using opposite International Biotechnology and Fortune Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Biotechnology 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 International Biotechnology Trust 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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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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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