Correlation Between Fortune Brands and Spotify Technology

Can any of the company-specific risk be diversified away by investing in both Fortune Brands and Spotify Technology 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 Spotify Technology 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 Spotify Technology SA, you can compare the effects of market volatilities on Fortune Brands and Spotify Technology 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 Spotify Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fortune Brands and Spotify Technology.

Diversification Opportunities for Fortune Brands and Spotify Technology

-0.77

Correlation Coefficient

Fortune Brands  Spotify Technology

Pay attention - limited upside

The 3 months correlation between Fortune and Spotify is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Fortune Brands Home and Spotify Technology SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spotify Technology 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 Spotify Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spotify Technology has no effect on the direction of Fortune Brands i.e., Fortune Brands and Spotify Technology go up and down completely randomly.

Pair Corralation between Fortune Brands and Spotify Technology

Assuming the 90 days trading horizon Fortune Brands Home is expected to under-perform the Spotify Technology. But the stock apears to be less risky and, when comparing its historical volatility, Fortune Brands Home is 1.25 times less risky than Spotify Technology. The stock trades about -0.22 of its potential returns per unit of risk. The Spotify Technology SA is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  33,655  in Spotify Technology SA on September 25, 2024 and sell it today you would earn a total of  9,940  from holding Spotify Technology SA or generate 29.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	89.06%
Values	Daily Returns

Fortune Brands Home  vs.  Spotify Technology SA

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. In spite of uncertain performance in the last few months, the Stock's basic 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.

Spotify Technology

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Spotify Technology SA are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Spotify Technology unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fortune Brands and Spotify Technology

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

The idea behind Fortune Brands Home and Spotify Technology SA 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.