Correlation Between Fortune Brands and Hisense Home

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

Diversification Opportunities for Fortune Brands and Hisense Home

0.4

Correlation Coefficient

Fortune Brands  Hisense Home

Very weak diversification

The 3 months correlation between Fortune and Hisense is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Fortune Brands Home and Hisense Home Appliances in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hisense Home Appliances 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 Hisense Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hisense Home Appliances has no effect on the direction of Fortune Brands i.e., Fortune Brands and Hisense Home go up and down completely randomly.

Pair Corralation between Fortune Brands and Hisense Home

Assuming the 90 days horizon Fortune Brands Home is expected to under-perform the Hisense Home. But the stock apears to be less risky and, when comparing its historical volatility, Fortune Brands Home is 2.52 times less risky than Hisense Home. The stock trades about -0.15 of its potential returns per unit of risk. The Hisense Home Appliances is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  329.00  in Hisense Home Appliances on September 27, 2024 and sell it today you would lose (32.00) from holding Hisense Home Appliances or give up 9.73% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Fortune Brands Home  vs.  Hisense Home Appliances

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. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Hisense Home Appliances

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hisense Home Appliances has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Hisense Home is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Fortune Brands and Hisense Home

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

The idea behind Fortune Brands Home and Hisense Home Appliances 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.