Correlation Between Fortune Brands and Johnson Controls

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

By analyzing existing cross correlation between Fortune Brands Innovations and Johnson Controls International, you can compare the effects of market volatilities on Fortune Brands and Johnson Controls 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 Johnson Controls. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fortune Brands and Johnson Controls.

Diversification Opportunities for Fortune Brands and Johnson Controls

-0.25

Correlation Coefficient

Fortune Brands  Johnson Controls

Very good diversification

The 3 months correlation between Fortune and Johnson is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Fortune Brands Innovations and Johnson Controls International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Controls Int 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 Innovations are associated (or correlated) with Johnson Controls. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Controls Int has no effect on the direction of Fortune Brands i.e., Fortune Brands and Johnson Controls go up and down completely randomly.

Pair Corralation between Fortune Brands and Johnson Controls

Given the investment horizon of 90 days Fortune Brands Innovations is expected to under-perform the Johnson Controls. In addition to that, Fortune Brands is 1.03 times more volatile than Johnson Controls International. It trades about -0.13 of its total potential returns per unit of risk. Johnson Controls International is currently generating about 0.2 per unit of volatility. If you would invest  7,632  in Johnson Controls International on August 31, 2024 and sell it today you would earn a total of  739.00  from holding Johnson Controls International or generate 9.68% return on investment over 90 days.

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

Fortune Brands Innovations  vs.  Johnson Controls International

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.

Johnson Controls Int

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Controls International are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak fundamental indicators, Johnson Controls demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fortune Brands and Johnson Controls

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

The idea behind Fortune Brands Innovations and Johnson Controls International 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.