Correlation Between Flow Traders and Fortune Brands

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

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

Diversification Opportunities for Flow Traders and Fortune Brands

0.24

Correlation Coefficient

Flow Traders  Fortune Brands

Modest diversification

The 3 months correlation between Flow and Fortune is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Flow Traders NV 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 Flow Traders 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 Flow Traders NV 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 Flow Traders i.e., Flow Traders and Fortune Brands go up and down completely randomly.

Pair Corralation between Flow Traders and Fortune Brands

Assuming the 90 days trading horizon Flow Traders NV is expected to generate 0.76 times more return on investment than Fortune Brands. However, Flow Traders NV is 1.32 times less risky than Fortune Brands. It trades about 0.18 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  1,812  in Flow Traders NV on September 12, 2024 and sell it today you would earn a total of  296.00  from holding Flow Traders NV or generate 16.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	86.15%
Values	Daily Returns

Flow Traders NV  vs.  Fortune Brands Home

Flow Traders NV

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Flow Traders NV are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Flow Traders unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 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.

Pair Trading with Flow Traders and Fortune Brands

The main advantage of trading using opposite Flow Traders and Fortune Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Flow Traders 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 Flow Traders NV 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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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.