Correlation Between Fortune Brands and Sparebank

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

By analyzing existing cross correlation between Fortune Brands Home and Sparebank 1 SR, you can compare the effects of market volatilities on Fortune Brands and Sparebank 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 Fortune Brands with a short position of Sparebank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fortune Brands and Sparebank.

Diversification Opportunities for Fortune Brands and Sparebank

0.11

Correlation Coefficient

Fortune Brands  Sparebank

Average diversification

The 3 months correlation between Fortune and Sparebank is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Fortune Brands Home and Sparebank 1 SR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sparebank 1 SR and Fortune Brands 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 Fortune Brands Home are associated (or correlated) with Sparebank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sparebank 1 SR has no effect on the direction of Fortune Brands i.e., Fortune Brands and Sparebank go up and down completely randomly.

Pair Corralation between Fortune Brands and Sparebank

Assuming the 90 days trading horizon Fortune Brands Home is expected to under-perform the Sparebank. In addition to that, Fortune Brands is 1.48 times more volatile than Sparebank 1 SR. It trades about -0.13 of its total potential returns per unit of risk. Sparebank 1 SR is currently generating about -0.01 per unit of volatility. If you would invest  14,540  in Sparebank 1 SR on September 1, 2024 and sell it today you would lose (60.00) from holding Sparebank 1 SR or give up 0.41% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Fortune Brands Home  vs.  Sparebank 1 SR

Fortune Brands Home

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fortune Brands Home are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Fortune Brands is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Sparebank 1 SR

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sparebank 1 SR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Sparebank may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Fortune Brands and Sparebank

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

The idea behind Fortune Brands Home and Sparebank 1 SR 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.