Correlation Between Azek and Fortune Brands

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

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

Diversification Opportunities for Azek and Fortune Brands

-0.19

Correlation Coefficient

Azek  Fortune Brands

Good diversification

The 3 months correlation between Azek and Fortune is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Azek Company and Fortune Brands Innovations in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortune Brands Innov and Azek 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 Azek Company 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 Innov has no effect on the direction of Azek i.e., Azek and Fortune Brands go up and down completely randomly.

Pair Corralation between Azek and Fortune Brands

Given the investment horizon of 90 days Azek Company is expected to generate 0.97 times more return on investment than Fortune Brands. However, Azek Company is 1.03 times less risky than Fortune Brands. It trades about 0.24 of its potential returns per unit of risk. Fortune Brands Innovations is currently generating about 0.02 per unit of risk. If you would invest  4,134  in Azek Company on September 2, 2024 and sell it today you would earn a total of  1,178  from holding Azek Company or generate 28.5% return on investment over 90 days.

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

Azek Company  vs.  Fortune Brands Innovations

Azek Company

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Azek Company are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Azek disclosed solid returns over the last few months and may actually be approaching a breakup point.

Fortune Brands Innov

Risk-Adjusted Performance

1 of 100

Weak

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

Pair Trading with Azek and Fortune Brands

The main advantage of trading using opposite Azek and Fortune Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Azek 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 Azek Company and Fortune Brands Innovations 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.